What is the life insurance ladder strategy?

Having a family means supporting them through difficult moments, like losing a job or being diagnosed with a serious illness. But are you prepared to support your family in the event of your own passing?

If not, you may want to consider taking out a life insurance policy. There are multiple types of life insurance to choose from in different amounts and different lengths. There are also strategic ways to utilize these policies in order to secure the most cost-effective and valuable protection, which we will explore further below.

If you're in the market for life insurance then start by getting a free price quote so you know exactly what to expect.

What is the life insurance ladder strategy?

Laddering your life insurance means buying multiple term life insurance policies with different lengths instead of buying one large policy for a longer term.

For example, let's say you are the breadwinner and want to buy life insurance to protect your spouse and kids. You can have $700,000 in coverage while your kids are still young, but don't need that much coverage once they've graduated high school.

If you are currently 30 years old and buy a $700,000 30-year policy, you may pay around $65 a month. That will equal $23,400 over the 30-year term.

However, you can save money if you decide to ladder your policies. For example, let's say you buy a $500,000 20-year policy and a $200,000 30-year policy. For 20 years, you will have $700,000 in coverage. Once the 20-year $500,000 policy expires, you will still have a $200,000 policy to cover any funeral costs, remaining debts and other miscellaneous expenses. 

In the above scenario, a 20-year $500,000 policy for a healthy 30-year-old man would cost approximately $31 a month, and a 30-year $200,000 policy would cost $23 a month. You will pay $15,720 in total life insurance premiums. In this case, laddering your life insurance instead of buying a single big policy could save you $7,680 in premiums over 30 years.

The benefit of laddering life insurance is that you're not paying for coverage you don't need. Another benefit of this strategy is that it's available for both current policyholders and prospective ones. All you need to do is buy another term (if you already have life insurance) or buy two with different time frames (if you don't).

You can start by getting a free price estimate now so you know exactly what it would cost.

Understanding term life insurance

Consumers usually buy life insurance to provide financial support if they pass away while there are loved ones depending on their income. There are two main types of life insurance: whole and term. A whole life policy will last for your entire life, as long as you keep paying the premiums. 

A term life policy only lasts for a set period of time, and coverage will end when the term is over. For example, if you have a 20-year term life policy, you will no longer be covered once those 20 years are over. If you want to extend coverage, you will have to sign up for a new policy.

As you get older, your life insurance needs may change, and you may not need as much coverage as you once did. This often happens for those with families. You may need more coverage when your kids are young, but once they're older and out of the house, you may not need as big of a policy as you once did.

Downsides of laddering life insurance

The disadvantage of laddering your life insurance is that it's more complicated to manage multiple life insurance policies. If you have several policies, make sure your family knows all of the details including the policy numbers, the provider and the payout amount. This is especially important if you have policies with different life insurance companies. 

Your policy may be canceled if you miss several payments so consider signing up for automatic payments to ensure that you don't miss a payment. Make sure to list your family as beneficiaries on your policy, too. This will make it easier for them to access the funds in case you pass away.

Ready to get started? You can get a free price quote online now or use the table below to start comparing some top providers on the market.