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There are other whole life plans that alter how premiums are paid to meet unique needs. Premiums charged for these plans are less than for a straight whole life insurance policy in the early years of the policy. Cash values accumulate with each premium payment. Insureds who need permanent protection but cannot afford the higher traditional whole life premiums required may buy these types of policies.
Modified whole life insurance is a whole life insurance policy characterized by an initial premium that is lower than that of straight whole life insurance for an introductory period. The policy owner will pay a lower, flat initial premium for the first few years, compared to the straight life premium. After this time, the premium will increase to an amount higher than what the initial straight whole life premium would have been.
The premium increases following the initial period. The premium changes once and then remains level for the life of the policy. Therefore, the modified whole life premium is characterized by two fixed premiums — a lower initial premium (3-10 years) that increases to an amount higher than the traditional straight whole life premium would have been, then remains level for life.
The purpose of modified whole life policies is to make the initial purchase of permanent insurance more accessible and more attractive, especially for individuals who have limited financial resources, but also the promise of an improved financial position in the future.
A graded premium whole life plan is a contract characterized, like modified life, by a lower premium than whole life in the early years of the contract. However, premiums increase annually or every year during the initial period. Once the premium increases to its final level, exceeding the whole life premium, it remains fixed for the remainder of life. The premiums for these policies are predetermined, but are not level in the traditional sense, as they would be in the traditional straight whole life or limited pay whole life plans.
| Policy | Death Benefit | Premium | Cash Value | Policy Loans | Partial Withdrawals of Cash Value | Surrender Charges |
|---|---|---|---|---|---|---|
| Modified Whole Life | Level for life | Predetermined. Two fixed premium periods. | YES. Predetermined, tax-deferred and guaranteed. | YES | NO. To receive cash, it must be borrowed. | NO |
| Graded Whole Life | Level for life | Predetermined. More than two fixed premium periods. | YES. Predetermined, tax-deferred and guaranteed. | YES | NO. To receive cash, it must be borrowed. | NO |
An enhanced whole life insurance policy (also referred to as economatic life or extraordinary life) is a low-premium, participating, permanent life insurance policy. The contract's face amount is reduced each year. Any dividends paid are set aside and used to purchase either paid-up additions or one-year term insurance, which is equal to the reduction of death coverage. This policy provides a guaranteed death benefit in the early years of the policy, even if dividends are insufficient to maintain level coverage.
Indeterminate premium whole life insurance is a type of whole life policy that offers a low initial premium for a specified period. After that period, the insurer may then increase premiums. The characteristics and benefits of this policy are similar to those of other contracts. However, an indeterminate premium whole life policy allows the premium to change due to changes in the insurer's investment income. Therefore, future premium adjustments are based on the insurer's investment performance, mortality experience, and expenses.
The company may raise or lower premiums, but they can never exceed the guaranteed maximum. Insurers adopted this innovative policy type to offer lower-cost life insurance. Today, term insurance may also be written with indeterminate premiums.
Current assumption whole life, also referred to as interest-sensitive whole life and excess interest whole life, is characterized by premiums that vary to reflect the insurer's changing assumptions concerning its death, investment, and expense factors. However, interest-sensitive products also provide that the cash values may be higher than the guaranteed levels.
If the company's underlying death, investment, and expense assumptions are more favorable than expected, policy owners will have two options: lower premiums or higher cash values, which could result in a higher death benefit in later years. Underlying assumptions could also turn out to be less favorable than anticipated, which would call for a higher premium than that at policy issue. The policy owner may then either pay the higher premium or reduce the policy's face amount and continue paying the same premium.
CAWL policies are either low-premium or high-premium. Both possess several characteristics, including but not limited to:
Low premium type: The low premium type includes an indeterminate premium that's initially low. It also contains a redetermination provision that allows the insurance company to refigure the premium after a specified period.
High-premium type: With the high-premium type, the initial premium is relatively high. It includes an optional pay-up provision that allows the policy owner to cease paying premiums once the policy's values are sufficient to pay up the contract.
Equity-indexed whole life insurance offers the security of traditional life insurance while allowing interest earnings tied to an equity index (e.g., the S&P 500), without direct stock market risks. The policy guarantees a minimum interest rate, defers taxes on interest, and provides access to policy loans. Designed to outpace inflation, these policies blend term life insurance with investment features, akin to universal life plans, with death benefits based on chosen coverage and account value. These products are not considered securities.