How Is It Done
Life Insurance Laddering
A typical life insurance laddering strategy involves purchasing multiple term life insurance policies with varying coverage amounts and term lengths, designed to align with your changing financial needs over time.1 Here’s a general illustration:
Scenario:
• Imagine a person in their early 30s with a young family, a new mortgage, and growing financial responsibilities.
Laddering Structure
Policy 1: Short-Term, High Coverage (e.g., 10-year term)
• This policy provides the highest level of coverage to address immediate, short-term needs, such as:
- Covering outstanding student debt.2
- Providing significant financial support while children are very young.
• As these short-term obligations decrease, this policy expires.
Policy 2: Mid-Term, Medium Coverage (e.g., 20-year term)
• This policy covers mid-term financial needs, such as:
- Funding children’s education expenses.3
- Supporting the family during the years of raising children.
- Covering a large portion of the mortgage.
• As children become more financially independent and the mortgage is paid down, this policy expires.
Policy 3: Long-Term, Lower Coverage (e.g., 30-year term)
• This policy provides coverage for long-term needs, such as:
- Ensuring the mortgage is fully paid off.
- Providing financial security for a spouse in later years.
- Covering final expenses.
• This policy provides longer lasting protection.
Key Considerations
- Matching Coverage to Needs: The ladder is designed to match the decreasing need for life insurance as financial obligations are met.
- Cost-Effectiveness: By using shorter-term policies, the overall cost of premiums can be lower compared to a single, long-term policy.
- Flexibility: The ladder provides flexibility to adjust coverage as life circumstances change.
