What is a graded death benefit?

A graded death benefit is a type of life insurance policy that provides a reduced payout during the first few years of coverage. This means that if the policyholder were to pass away during the initial years of the policy, the beneficiaries would receive a lower death benefit compared to what they would receive later on in the policy.

Graded death benefits are typically offered to individuals who may have health issues or other risk factors that make them higher-risk to insure. By reducing the payout during the early years of the policy, the insurance company is able to reduce their financial risk.

Once the graded period is over (usually anywhere from 2 to 3 years), the policy will begin to provide the full death benefit to the beneficiaries if the policyholder passes away. This gives insurance companies a way to still provide coverage to higher-risk individuals while managing their potential losses.

It is important for individuals considering a graded death benefit policy to carefully review the terms and conditions of the policy, as well as the payout structure, to ensure that it meets their needs and expectations.