Modified whole life insurance policies are created by actuaries who work
for life insurance companies. This is their responsibility, they create the life insurance plans. There are variations of each and every plan.
The intent here is two fold. First they create policies that kind of ease you into the whole life experience.
They create policies that give you the full face amount from the word go. When you die your beneficiary, usually a family member, will receive the face amount of the policy in a lump sum or in the form of an income.
The premiums, however, may start out at a tiny bit more than half what the normal premium would be but it would increase every year for say 5 years.
It would then level off a little higher than the regular premium would be.
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You are getting the same policy as the regular whole life but they ease you into it. You don't pay the full premium to start.
Secondly you get a whole life policy for much less premium. These actuaries are very creative, you would be surprised to see how some of these policies are created. One very large carrier used to market one that goes something like this.
You have a base whole life policy with extra life protection. The
extra life protection is comprised of one year term insurance plus
paid up additions.
They give you the full coverage from the word go. They can afford to do this because of their track record. The life insurance company knows how many people at a given age will die in the first year and every year thereafter.
For the past 75 years they never failed to pay a dividend. The
portion of protection purchased by paid up additions come as a result of
the dividend paid.
The law requires that they tell you that the face amount may be reduced if the company fails to pay a dividend. Dividends are not guaranteed. It hasn't happened yet and, in my humble opinion, is not likely to happen.
Those modified whole life policies are still going strong.
The permanent policies that most people buy are modified whole life insurance policies with some similarity tho those described above.
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