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What is Modified Whole Life Insurance?

Researcher & Writer
December 16, 2019

Over the years, consumers have been faced with the difficult decision of cheaper term life insurance that’s likely to expire before you pass away or higher initial premium whole life insurance that lasts until you die. One potential life insurance policy solution, modified whole life insurance, provides lower initial premiums for a set period of time, which then increase to a higher fixed premium for the duration of your lifetime.

What is modified whole life?

Also known as modified premium whole life insurance, an example might see you pay lower rates for the first five years before the payments then increase for the remainder. Just as we see with ordinary whole life insurance policies, the death benefit is guaranteed as long as the premiums are paid.

In addition, the modified whole life insurance build cash value. You have access to the cash value by taking a withdrawal or by using the cash value as collateral and taking out a life insurance loan.

Modified whole life insurance features

One of the most important feature you need to look for when researching the market is the period of reduced premiums. Typically, you can choose modified premium payments for 5 years or 10 years. After the 5 year or 10 year period, the premium increases to a new level, fixed premium.If you choose 5 year modified whole life, the increased premium will be less than if you extend the modified premium period out for 10 years.

Modified Whole Life Insurance Pros and Cons

Cash value

Pro: Your modified whole life policy builds cash surrender value.

Con: The cash value takes much longer to grow since your premiums are reduced for the first few years.

Death benefit

Pro: Guaranteed level death benefit. When it comes to modified whole life insurance, the most common misconception is that the face value fluctuates with the premiums. However, this simply isn't true and the face value will remain the same from start to finish. Even during the period of paying less and at the point of switching to the more expensive premiums, the face value is untouched.

Con: Due to higher initial costs than term life, the death benefit may not be high enough to properly insure your life and financially protect those you love. A potential solution is whole life with a term life rider that drops off once the policy's death benefit reaches a certain level.


Pro: You may be eligible for dividends with a modified whole life insurance policy but these payments are determined using the cash value.

Con: Since your cash value is going to be lower in the opening years, your dividends will also remain lower than a regular whole life policy. If you happen to earn dividends, they can be used in the same way whether it’s to purchase paid-up insurance, pay premiums, or just take it as income.

Should I choose a modified whole life policy?

This policy is perfect for those who can’t initially afford a whole life policy right now. If you’re a young adult, for example, and you want to secure life insurance into your future, you can invest in modified whole life insurance.

There are two reasons why modified whole life insurance might be the right choice for you. First, it allows those with a small budget to get the lifetime coverage they need while young rather than having to buy a term life policy which will expire. Second, today’s premiums can be locked in rather than waiting with no insurance until you’re financially secure. By this time, you could be five or ten years older and the premiums will have increased beyond what you would have paid (even with the increase!). Right now, you’re young and healthy so you can get insured on the best rates possible.

Modified whole life vs term life insurance

It is not a apples to apples comparison when you compare term life vs whole life insurance. For one, term life insurance does not last your entire life. However, the premiums for a whole life policy will initially be higher than a with term life policy. Term policies do not build cash value, but whole life policies premiums are higher due to the cash accumulation and lifetime coverage. It really comes down to your specific need and objectives when determining which policy is best for you.

Alternatives to modified whole life insurance

Convertible term life insurance

Alternatively, consider convertible term life insurance. A policy that allows you to have term coverage for a period of time, and then you can convert the policy to permanent coverage down the road, if you choose to exercise the conversion option.

Limited pay whole life insurance

Alternatively, rather than a modified policy, consider limited pay whole life. You can choose 10 pay whole life insurance, which you pay the premiums on for 10 years. Upon the end of the 10 years, your policy is paid up life insurance. You no longer need to make premium payments, but you get to keep the coverage your lifetime, and the policy still grows because of interest and potential dividends.

Modified whole life insurance for businesses

Moving away from the individual market for just a moment, we’ve also seen businesses have great success with modified whole life insurance. Whether it’s buy-sell agreement or key man insurance, you might not have the funds available for a full policy right now as you are just starting out and your cash flow is restricted.

Rather than tax your business more than necessary to try and come up with life insurance premiums, you can choose a modified whole life policy that allows you more breathing room in your budget as you wait for your cash flow to improve.

1035 Exchange with modified whole life insurance

Sometimes people are stuck in a life insurance policy they no longer want. Rather than cancel your life insurance, another option is to exchange the policy for a better one. And you don't always have to choose whole life. There are other permanent life insurance options available that might be more in line with your goals.

Over the years, plenty of people have been stuck in an agreement they can’t afford simply because they got distracted by the initial affordable premiums in the short-term. Remember, you need to consider the long-term too because when the modified whole life premium increases, that is the policy you’re stuck with for your lifetime. Make sure you can afford it, or consider alternatives such as the 1035 exchange mentioned above.

Buying modified whole life insurance

Before finishing, we briefly want to discuss the process of buying modified whole life insurance. Just because the policy is a little different, this doesn’t mean the buying process should change. For example, you should still be using comparison tools so you can compare several life insurance quotes.

Furthermore, you’ll need to consider your needs (and the needs of your family). What are you looking to cover with the death benefit? Are your needs likely to change? How much are you willing to pay? Are you happy with five years of reduced premiums or will you need a longer period?

Now that you know about modified whole life, see how much it might cost you. Get a quote today.

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