How to Create the Perfect Life Insurance Ladder Strategy

When you’re looking to purchase life insurance, the first thing you need to consider is how much coverage you need. However, if you’re like most people, you probably won’t need the same amount of coverage throughout your entire lifetime. That’s where using the life insurance ladder strategy can potentially save you a lot of money.

How the ladder strategy works

The life insurance ladder strategy involves stacking multiple life insurance policies that vary in term so you only pay for the coverage you need at specific times in your life.

For example, let’s say you’re 29, you’re married, and you have a one-year-old child. You have five years left till you’ve paid off your college debt, you have a 30-year $400,000 mortgage that decreases as you gain more equity in your home, and you want to be able to provide for your child until they’re 21.

A ladder strategy that could work for this type of situation could look like this:

You need $1 million in coverage, so you purchase a 10-year policy for $500,000 of coverage for $15 per month, a 20-year policy for $300,000 of coverage for $17 per month, and a 30-year policy for $200,000 of coverage for $21 per month. Your total monthly premiums for years 1 -10 will be $53; for years 11-20, they’ll be $38; and for years 21-30, they’ll be $21. In contrast, if you purchase a single 30-year life insurance policy for $1 million, you’ll be paying $76 per month for 30 years. 

In other words, you can save significantly by using the ladder strategy.

Disadvantages of the ladder strategy

The ladder strategy doesn’t work for everyone.

For instance, if you have a child with a disability who’ll continue to need care throughout their life, you’ll want to ensure they receive a death benefit even after the age of 21—so it would be better to select a whole-life policy.

At the same time, it’s challenging to predict your financial needs 10, 20, or 30 years from now. Things might happen that place an unexpected financial burden on you. If you’d prefer to plan for the unexpected, then a conventional term or whole-life policy would be a better option.

The other thing to keep in mind is that the ladder strategy requires good organization on your part—and on the part of your beneficiaries. You’ll have multiple premiums to keep up with, and in the event your beneficiaries have to file a claim, they’ll have to do so with all of the life insurance companies where you have a policy.

Trust an independent life insurance broker

Life insurance is complicated—and laddering policies is something that you need expert help with. For more information about whether or not the laddering strategy is right for you, please contact us to speak with one of our knowledgeable life insurance agents.