Type

• Impaired risk insurance is often sold as graded benefit whole life. This policy type was made for exceptional risks. The policy provides a face amount of insurance which must be "earned" over time. You purchase a face amount of death benefit. In the early years of the policy, the death benefit is equal to the premiums you pay for the policy plus an interest rate factor set by the insurer. Eventually, the death benefit will equal the face amount you originally purchased.
  
  

Benefit

• The benefit of graded-benefit policies is that your child gets the insurance he needs. Policy death benefits for graded-benefit policies are guaranteed, even when the policy death benefit does not equal the face amount you originally purchased. Premiums are guaranteed level and the policy even builds cash value similar to ordinary whole life policies.
  
  

Disadvantage

• The disadvantage here is that the premiums are substantially higher than ordinary whole life. You can expect to pay five to 10 times the premium of an ordinary whole life with a graded benefit policy. This is because the insurer must be compensated for the additional risk they take. On top of that, the insurer is using a substantial portion of the premium to invest in investments that will meet the death benefit promises made by the insurer in the contract.
  
  

Consideration

• Before you buy a graded-benefit policy, shop around. A life insurance company offering impaired risk insurance may price their policy differently for different age groups. You may find substantial differences in premiums depending on your child's age, even though overall premiums will be high for graded-benefit policies.