Life Insurance Laddering
Personal Mortgage Insurance Advantage
- This insurance protects the lender, not the borrower, if the borrower defaults on their mortgage.
- In Canada, for example, if you put less than 20% down on a home, you’ll likely be required to get mortgage default insurance through organizations like CMHC (Canada Mortgage and Housing Corporation).
- This type of insurance doesn’t use a “laddered” approach. It’s a one-time or ongoing premium based on the mortgage amount.
• This involves using life insurance to ensure your mortgage is paid off if you pass away.
• The “laddered approach” is a strategy within life insurance, where you purchase multiple term life insurance policies with staggered end dates.
• Here’s how it works:
– Staggered Term Lengths: You buy policies with different term lengths (e.g., 10, 20, and 30 years).
– Decreasing Coverage Needs: As you pay down your mortgage and your children become more independent, your need for life insurance decreases. The laddered approach aligns with this.
– Cost-Effectiveness: Instead of a single, large, long-term policy, you have smaller, shorter-term policies that expire as your needs change, often resulting in lower overall premiums.
• Example:
– A 10-year policy for high coverage during early mortgage years.
– A 20-year policy to cover mid-term mortgage and child-rearing expenses.
– A 30-year policy for long-term protection.
• The benefit of this method:
– It allows your insurance coverage to match your decreasing financial needs over time.
– It can save you money on premiums compared to a single long-term policy.
Key Differences
- Bank mortgage insurance: Protects the lender.
- Personal mortgage insurance (laddered): Protects your family.
