Ladder Life Insurance

Buying the right amount of life insurance can be a challenge when you’re not sure how much you need. There are many variables to consider — current expenses, outstanding bills, long-term expenses like a mortgage and college tuition and other financial concerns — when you’re planning for the long-term.

The amount of life insurance you need at 25 years of age will differ from what you need at 40 or 60 and up. Laddering your life insurance policy is a strategic way to tackle your insurance needs and keep up with the changes that occur in your life. This approach helps you avoid paying a large amount of life insurance during the years you don’t need so much.

You can buy ladder life insurance in two ways:

Buy multiple policies now: Purchase several policies with different terms at the same time. For instance, buy one policy with a 25-year term, a second policy with a 20-year term and a third policy with a 15-year term.
Buy one policy now, add more later: Buy one policy now and add more policies later. For example, buy a 25-year term policy early in your adult life and ladder a 20- and 15-year policy during your working and outstanding debt years or when you have children, buy a house or incur other significant debts.

The Ladder Life Insurance Strategy

Laddering life insurance policies is a great strategy that lets you buy multiple policies with varying terms and death benefits rather than one single policy. It’s ideal for people who need life insurance and have various financial obligations and loved ones who rely on their income for support and financial stability.

How to Ladder Your Life Insurance

Your life insurance coverage needs change as you age. For example, a 30-year-old married policyholder with three children and a $500,000 mortgage balance may decide that for the next 15 years, they need $1.5 million in coverage to pay off the mortgage and give their descendants enough to cover the lost income from their unexpected death. In 15 years, the kids will be on their own and the mortgage balance is likely to be less, so the family’s financial needs may not be as great. The ladder life insurance plan might look like this:

Policy 1: A 15-year policy of $500,000
Policy 2: A 25-year policy of $500,000
Policy 3: A 30-year policy of $500,000

If the policyholder dies unexpectedly in the first 15 years, the death benefit would total $1.5 million, when expenses are likely to be the greatest. If the enrollee dies between 15 to 25 years, the death benefit from the two remaining policies will be $1 million. And if the policyholder dies in 25 to 30 years, when kids are likely to be on their own and supporting themselves, the single death benefit of $500,000 would be paid to their beneficiaries.

Save Money When You Ladder Life Insurance

Laddering your life insurance policies is a complicated strategy, but if done correctly, it can potentially save you significant money over the long haul. The annual premiums for 15-, 25- and 30-year policies for $500,000 coverage could be less expensive compared to a 30-year policy for $1.5 million. For example, a 30-year $1.5 million policy could cost $2,000 annually while three staggered plans might run around $1,500 a year.

Annual premium for a 15-year policy: $300
Annual premium for a 25-year policy: $450
Annual premium for a 30-year policy: $700

Keep Track of Your Policies

It’s important to keep track of your ladder life insurance policies to ensure you’re not paying more for annual coverage than you need to. Also make sure you share your strategy with your loved ones so they understand how much to expect in death benefits if you pass away unexpectedly.