What Is Modified Whole Life Insurance?

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Modified whole life insurance, also called modified premium life insurance, is a type of permanent insurance coverage that charges lower premiums than a regular whole life policy in the first 5-10 years. After 5-10 years, policy premiums go up and typically cost more than a regular whole life policy. In other words, you get cheaper premiums now in exchange for more expensive insurance later.

So why would anyone want modified whole life insurance? For people who need coverage now but can’t afford a regular whole life policy, a modified premium policy is one option. In this article, we’ll explain the pros and cons of modified whole life insurance and explore alternative coverage options to fit your budget and financial goals.


When it comes to life insurance, there aren’t inherently good policies or bad policies. It all depends on how you plan to use your insurance and what you can afford. If you know you’ll be making more money in 5-10 years or have more expendable income and your primary financial goal is to leave a financial legacy to your family, a modified whole life insurance policy could be right for you. Here are the pros and cons of a modified premium policy compared to regular whole life insurance:


  • Lower premiums in the early years of policy ownership while still retaining full face value of a policy
  • Allows you to lock in permanent coverage at a temporary low rate now and maintain favorable premiums over time if you’re young and healthy
  • Can be used by new businesses with limited business capital to provide coverage for key employees
  • Allows you to get permanent coverage if you have certain health issues that prevent you from being approved for regular whole life insurance, due to limited medical underwriting


  • Slower cash value accumulation overall; not ideal if you’re primary financial goal is to use whole life insurance for private family banking
  • May not accumulate cash value during the lower premium period, reducing lifetime cash value 
  • Death benefit may not pay out in the first 2-3 years of ownership; typically beneficiaries will only receive return of premiums plus 10% interest
  • More expensive in the long run


Although modified whole life insurance is an option for certain individuals, there are alternatives that may be a better choice for you and your family. 

Term Life Policy with a Term-Conversion Rider

The most popular alternative to modified whole life insurance is to buy a term life insurance policy with a term-conversion rider. You buy a term policy, which is the least expensive type of life insurance, but have the option to convert it to a whole life policy at a future date, usually within 10 years of purchasing the policy. If you convert to whole life insurance, you don’t need an additional medical exam and will likely lock in a preferred health rating. 

Your premium will increase, because you’re now paying for permanent coverage, but it will likely be less than the increase associated with a modified whole life policy. You’ll also be eligible for all the benefits of whole life insurance, including tax advantages, cash value, a guaranteed rate of return, guaranteed death benefit, and potential dividends if you purchase a policy through a mutual insurance company.

Smaller Whole Life Policy with Term Life Insurance 

Because the price of insurance depends on how much coverage you buy, you may be able to lower costs by buying a smaller whole life insurance policy and adding supplemental term insurance as needed. This option allows you to capitalize on a guaranteed interest rate and non-guaranteed dividends from day one and offers tax advantages and permanent coverage. You then add on term coverage to your whole life policy, often for a reduced rate, which can help protect your family while you have large outstanding loans like a mortgage or while your kids are young.

Universal Life Insurance

Universal life policies are permanent life insurance policies that offer variable premiums. Depending on how your policy is structured, you earn cash value based on an index or subaccount selected by your insurance carrier. Cash value typically is not guaranteed and universal life doesn’t pay out dividends. The main appeal of a universal policy is the ability to modify your death benefit and adjust your premiums payments as needed. Keep in mind that without sufficient cash value your policy may lapse and your insurance carrier may raise premiums, whereas whole life insurance premiums are guaranteed level for your lifetime. 


While modified whole life insurance and modified endowment contracts sound similar, they are two very different financial products. A modified endowment contract is virtually the opposite of modified whole life insurance. Instead of seeking out a policy with a low premium in the first several years and a higher premium later, MECs charge all of the premium upfront.

Essentially, MECs are single premium life insurance policies where the policyholder pays one lump sum or a series of large payments upfront for coverage. This supercharges the policy to earn maximum cash value with a guaranteed rate of return to the point the IRS no longer considers it traditional life insurance. Therefore, it loses the living tax advantages (like tax-free policy loans) and liquidity afforded to other types of cash value permanent insurance policies and policyholders may be penalized for accessing cash value before age 59 ½. It functions as an investment that more closely resembles an annuity than an insurance policy. 


There are some instances where modified whole life insurance makes sense, but for most people there are better alternatives. Regardless of which type of policy you choose, be sure to carefully look at your insurance policy illustrations to make sure you understand your policy premiums. If you can’t afford your premiums, your policy will lapse and you’ll lose coverage.

We highly recommend working with a trusted insurance agent or Wealth Strategist who has the ability to source policy options from a variety of insurance companies to find one that fits your needs, rather than a captive agent who is contracted to only sell policies from one company. Consultations with a Paradigm Life Wealth Strategist are free.

Schedule a free virtual consultation today.

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