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The Ladder Life Insurance Strategy

The ladder life insurance strategy provides policyholders with extra coverage when they might need it most and phases out of the coverage when their needs won’t be as significant. This approach helps save money on premiums and maximizes the plan’s benefits. Policyholders can ladder life insurance in the following ways: 

  • Buy multiple life insurance plans with different period lengths at the same time. For example, purchase one 30-year term policy, one 20-year term policy and a third 10-year term policy.
  • Buy a single policy now and add more policies later. For example, buy a 30-year policy early in your marriage or career and ladder a 10- and 20-year policy during other significant life or financial milestones, such as when you have children or buy a house.

What Is the Ladder Life Insurance Strategy? 

The ladder life insurance strategy allows policyholders to buy multiple life insurance policies with different term cycles rather than one single policy for all their needs. It’s a great strategy for people who need life insurance and have a variety of financial obligations and dependents who rely on their income for survival. By laddering your term life insurance policies, you can alter your coverage needs as your life circumstances, such as outstanding home mortgages and children’s college tuition, change over time. 

How to Ladder Your Life Insurance

The amount of insurance you need when you’re 25 or 30 is likely different than what you might need by the time you’re 40 or 50 years old.

For example, a 28-year-old married policyholder with two children decides that for the next 15 years at least, they need coverage totaling $1.5 million to be able to provide for their family. After that, the mortgage will be paid off, so at that point, only $1 million is necessary to financially protect dependents in case of a policyholder’s unexpected death. And in 20 years, the kids will be on their own, so the financial needs will be reduced to around $500,000. Your ladder life insurance plan might look like this: 

  • Policy 1: A 30-year policy of $500,000
  • Policy 2: A 20-year policy of $500,000
  • Policy 3: A 10-year policy of $500,000 

If the policyholder passes away in the first 10 years, the death benefit will be a total of $1.5 million, which would cover the deceased’s beneficiaries’ needs. If the policyholder dies between 10 to 20 years, the death benefit from the two remaining policies will be $1 million. And if the enrollee dies in the 20 to 30 year time, the single remaining death benefit of $500,000 would be paid out.

Save Money Using the Ladder Life Insurance Strategy

By purchasing different life insurance policies and laddering your plans, you can create a peak amount of coverage when you need it most without having to pay for a large policy during the years you’re likely to need it less. The annual premiums for 10-year and 20-year policies would be less expensive compared to a 30-year policy rate for the same coverage. A policyholder might pay out $2,000 a year for a single $1.5 million policy, while three staggered plans might have the following premiums:

  • Annual premium for a 30-year policy: $700
  • Annual premium for a 20-year policy: $450
  • Annual premium for a 10-year policy: $300

The three staggered plans add up to $1,450 a year compared to $2,000 for one large policy. Actual rates will vary and depend on your health, age and lifestyle. Life insurance participants continue to save money as the shorter policies drop off and the premiums are no longer due. 

Keep Track of Your Ladder Life Insurance Policies

Be sure to share your ladder life insurance policies with your beneficiaries so they are aware of how many policies you have and with what insurers. And don’t forget you have more than one policy in place when it comes time to pay the annual or monthly premiums. You want to ensure you don’t let any of the policies accidentally lapse because you overlooked a payment. 

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