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Having a family means supporting them through difficult times, such as losing their job or being diagnosed with a serious illness. But are you prepared for support your family in the event of your own demise?
If not, you might want to consider taking out life insurance. There are several types of life insurance to choose from in different amounts and durations. There are also strategic ways to use these policies to ensure the most cost-effective and valuable protection, which we’ll explore later.
If you’re in the market for life insurance, start by getting a free quote so you know exactly what to expect.
What is the life insurance ladder strategy?
Increasing your life insurance means buying several life insurance policies with different lengths instead of buying one big policy for a longer term.
For example, let’s say you’re a breadwinner and you want to buy life insurance to protect your spouse and children. You can have $700,000 in coverage while your kids are still young, but you don’t need that much coverage after they graduate high school.
If you’re 30 years old and you buy a $700,000 policy for 30 years, you might pay about $65 a month. This will equal $23,400 over the 30 year term.
However, you can save money if you decide to scale your policies. For example, let’s say you buy a 20-year $500,000 policy and a 30-year $200,000 policy. For 20 years, you’ll have $700,000 in coverage. After 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 $500,000 20-year policy for a healthy 30-year-old male would cost approximately $31 per month, and a $200,000 30-year policy would cost $23 per month. You will pay $15,720 in total life insurance premiums. In this case, scaling your life insurance instead of buying a single large policy could save you $7,680 in premiums over 30 years.
The benefit of laddering life insurance is that you aren’t paying for coverage you don’t need. Another benefit of this strategy is that it is available to both current and future policyholders. All you have to do is buy another term (if you already have life insurance) or buy two with different terms (if you don’t).
You can start by getting a free price estimate now so you know exactly how much it would cost.
Understanding life insurance
Consumers often purchase 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 it will last for your lifetime as long as you keep paying premiums.
A life policy it only lasts for a set period of time and coverage will end when the term ends. For example, if you have a 20 year life policy, you will no longer be covered when those 20 years are up. If you want to extend coverage, you will have to sign a new policy.
As you age, your life insurance needs may change and you may not need as much coverage as you once did. This usually happens to those with families. You may need more coverage when your children are young, but when they are older and away from home, you may not need as large a policy as you once did.
Disadvantages of laddering life insurance
The downside of scaling your life insurance is that it’s more complicated to manage multiple life insurance policies. If you have multiple policies, make sure your family knows all the details, including policy numbers, provider and payment amount. This is especially important if you have policies with different life insurers.
Your policy may be canceled if you miss multiple payments, so consider signing up for automatic payments to ensure you don’t miss any payments. Be sure to list your family as beneficiaries on your policy as well. This will make it easier for you to access funds should you pass away.
Ready to get started? You can get a free quote online now, or use the table below to start comparing some of the top vendors in the market.
