UPDATED: Jul 25, 2011

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Written By: Laura BerryReviewed By: Daniel WalkerUPDATED: Jul 25, 2011Fact Checked

Some people do not think about purchasing life insurance until they have been diagnosed with a serious illness. When this happens, they may feel it is too late to get life insurance. After all, what company will sell a life insurance policy to someone who is terminally ill?

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The surprising answer is that you can get life insurance when you are terminally ill. You may not be able to get a “regular” life insurance policy which requires a medical exam, but there are special policies designed for these situations which are available to benefit the families of terminally ill patients.

Graded Life Insurance

A “graded” life insurance policy is a whole-life product that begins with a set premium that increases over time. During the first two years of the policy, the premiums increase gradually, then level off. If the insured dies within the first two years that the policy is in force, the beneficiaries receive a refund of the premiums, plus some interest. If the insured survives the first two years of the policy, the full face value is paid upon death.

This can be a good investment for someone faced with a terminal disease who does not know if he or she will survive for an extended period of time. In such a situation, the person’s thoughts naturally turn to loved ones and what will happen to them after the person is gone. With a graded policy, even terminally ill patients can rest assured that their loved ones will receive some type of benefit. The money spent on the premiums is guaranteed to be returned, so it is a good way to invest money for your family’s future.

How much is a Graded Life Insurance Policy?

Of course, graded policies are not priced in the same way as regular insurance policies. The premium price will depend on the person’s age, the type of disease in question, the advancement of the disease, and other health factors. Graded policies are, on the whole, going to be much more expensive than regular life insurance. They are normally limited to $10,000 to $50,000 of face value, as well, although some policies allow higher benefit levels, or may allow you to purchase more than one graded policy, either from the same or another company.

The reason companies are willing to offer graded policies is, to be honest, a gamble. If someone with a terminal illness dies within the first two years of the policy, the insurance company is not really out of pocket, as they have held the premiums during that time and will simply refund them. Of course, if the person dies after the two-year period expires, the company will pay far more out than they took in for premium payments. As with all insurance, there is some risk involved on the part of both the insured and the insurance company.

However, for a person faced with a terminal illness and a family to provide for, this might be a risk worth taking. There are other forms of “straight” life insurance that are sometimes available to people who are suffering from a disease considered “terminal,” but of course the premiums for these plans will be higher than for healthy people. The term “terminal illness” is sometimes misunderstood; a terminal illness means the disease will eventually cause death, but it does not necessarily mean the death will be soon.

For this reason, people with certain “terminal” diseases are still considered insurable. The most important thing to do is find an agent with a good working knowledge of the industry, and who can find good policies at reasonable prices for people in this situation. Not all agents specialize in terminal policies; it is best to deal with one who is familiar with these plans, so that you know you are getting the best deal possible. A search of the internet can turn up agents in your area who understand this type of coverage. You can also contact your state’s Insurance Commissioner for help locating an agent.

The best way to keep yourself from this situation is prevention, and that means planning for and purchasing your life insurance while you are young and healthy. Although life insurance can be an expense for a young person, and often seems unnecessary, a paid-up policy is worth far more than its face value when you are older and facing a serious illness. Knowing that you have the money in place to provide for your loved ones, no matter what happens, is a security that is worth far more than you will pay in premiums.

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Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.

A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Written by Laura Berry
Former Insurance Agent Laura Berry

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Car Insurance Agent Daniel Walker