For example, if death of the insured person occurred during year one or two, it may pay back all the premiums you paid in, plus 10%.
If death occurred during year three or afterwards, it would pay the beneficiary the whole death benefit (100%).
Different life insurance policies are graded a different number of years, and each insurance carrier has their own criteria for how much is paid back during the graded years.
Most graded benefit whole life insurance policies are only graded for natural death. For example, death due to illness, natural causes or old age. They usually pay 100% of the death benefit from day one for accidental death.
Guaranteed issue whole life policies are graded, and some simplified issue life insurance policies are graded. Simplified issue policies are those that do not require any medial exam.
The biggest thing to watch out for with graded whole life insurance policies is whether the premium stays level for entire lifetime.
Some graded whole life policies have premiums that go up at regular intervals, such as, every five years.
With some plans, the insurance company may raise the premiums at any time, as long as they do so for everyone owning that type of life insurance policy. If you anticipate living longer than a few years, it is best to buy a graded benefit whole life insurance policy where the premiums will stay level for the rest of your life.