If you have family members you love, it is imperative that you protect them by putting a life insurance policy in place. A “ladder” strategy is a technique in which you purchase several term life insurance policies with a range of term periods rather than buying a single policy.
Calculating the Financial Needs of Your Loved Ones
The process starts with calculating your family’s projected financial needs in the years ahead. The theory behind the ladder strategy is that generally, a family’s financial health will improve over time as debts are paid off. The calculations involve determining when certain debts will be paid off and using this information to purchase several term life insurance policies with staggered term limits of 10, 20, and 30 years. Typically, the highest payout is at 10 years, reducing at 20 years, and the lowest at 30 years when many families are in a better financial condition with debts paid off and money in a pension and other investments. Purchasing several policies with different term limits has the advantage of being less expensive than purchasing a single, large 30-year term policy.
Another laddering strategy is to purchase both term life and whole life insurance, which does not expire if you keep up your payments. Splitting between term and whole life insurance can allow you to have some permanent life insurance in place, but at a lower cost than investing in one large whole life policy.
The Ladder Strategy: Pros & Cons
There are a number of considerations to take into account before setting up a ladder strategy for your life insurance policy.
Pros to Using the Ladder Strategy
The main benefit of a life insurance ladder strategy is that it saves you money over time. Term life insurance premiums often increase as you reach certain age milestones. With a range of term lengths, and if you stay generally healthy, you could enjoy significant savings.
With many providers, you have the option to adjust the amount of coverage, extend coverage, or convert to whole life. Get help from one of our local insurance agents for guidance buying the right policy with the best options to suit your family.
Cons to Using the Ladder Strategy
The downside of the ladder strategy is that many life insurance companies will not allow you to purchase multiple life insurance policies at one time, and it could require a little more work to put the policies in place. You will also have a series of premiums to manage, rather than a single monthly payment. Another downside is that no matter how much we may plan, a sudden death could occur early in life. The family left behind will need the total value of a more significant life insurance policy to make it comfortably through the years ahead.
The Best Life Insurance Strategy is Personalized
Planning your life insurance is not a cookie-cutter situation. Every family is unique and has varying needs. In some cases, both parents work and have life insurance through their employment, retirement accounts, inheritances, and other assets. Other families may have a single breadwinner, who may be an employee, work on a contract basis, or own a business.
How you structure your life insurance should be based on your situation, but one factor is always true: purchasing life insurance coverage when you are younger locks in lower rates, which can be an important advantage. This applies whether you use the ladder strategy or purchase a single policy. Whatever your needs, our insurance agent can help you find the best coverage at rates that fit your budget.