What is a graded death benefit and how does the 2-year waiting period work?

What it means

• Carriers use graded death benefits on policies with reduced or no medical underwriting (simplified issue and, especially, guaranteed issue) to price for the risk they cannot verify medically. The most common structure is a two-year graded period.
• During those two years, if the insured dies from natural causes such as illness, the beneficiary typically receives all premiums paid plus a stated interest rate — often around 10% — but not the full face amount. Death from a covered accident is normally paid in full immediately. After month 24, the policy pays the full face amount for any covered cause of death.
• A graded product is not a scam — it is disclosed in the policy and is the trade-off for issuing coverage to applicants who otherwise could not qualify. Fully underwritten and many simplified-issue policies pay the full benefit from day one.