Modified whole life insurance is permanent life insurance in which premiums increase after a specific period. Usually, after five or 10 years, the premiums increase but remain constant thereafter. Traditional whole life insurance premiums, in contrast, remain the same throughout the life of the policy.
Whole life insurance provides a guaranteed benefit upon the death of the insured, regardless of when they die. This offers a clear advantage over term life insurance, which only pays out if the death occurs within a specific time frame. However, whole life insurance also has significantly higher costs.
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Variable life insurance premiums can be fixed or variable, allowing the policyholder to remit a premium payment of no less than what is required to cover fees and expenses (e.g., mortality and expense (M&E) fees). As cash value builds, through the remittance of premiums and accumulation of interest, the net risk to the insurer decreases.
As a result, associated fees and expenses may decrease, reducing the minimum premium needed to cover such charges. Alternatively, some insurers outfit their policies with a lapse protection feature, which prevents the policy from lapsing due to insufficient cash value as long as certain level premiums are paid over a specific period.4