Laddering Your Life Insurance

Term Life Insurance

Life insurance protects you and your family from financial loss due to a premature death of yourself or your spouse, it’s the bedrock of strong financial plan.  Term Life Insurance offers the most coverage for the lowest premiums and most people choose ‘term’ for the bulk of their coverage.

With a term insurance policy, you can ensure your family is protected during the most sensitive years (while you’re raising the children and paying off the mortgage). This is the time when your family has the most to lose financially if you were to pass away.

Term Life Insurance Lengths and Laddering

Term life insurance is offered with various premium guarantees from 5 years to 35 years or to a certain age like 65 years old. There are many options which can be confusing for some but a great help to others. Most consumers don’t know they can have multiple term lengths within one life insurance policy.

For example, a 30 year old couple with two small children could buy 1 million of total coverage in layers within one policy:

• Term 10 250K
• Term 20 500K
• Term to age 65 250K

Layering the coverage means they will have the most protection (1M) in the first 10 years while the children are youngest the mortgage is the largest. In this case, the Term 10 will fall off after 10 years and they will continue with the Term 20 and Term to age 65 with 750K in place until the end of year 20 when their children will likely (hopefully) have moved out on their own. After 20 years, the children might have left the family home but the couple still has their Term to age 65 in place for 250K that will protect their retirement savings plans until they reach age 65.

Layering coverage means you will only go through the underwriting process once…when you are young and healthy. Life insurance rates go up as you age and up more if your health changes.

With a little planning, you can easily build a life insurance portfolio that will protect your family for many years.

Term Life Insurance in Renewable

Most term policies are renewable. This simply means that the insurance company guarantees you will be able to renew your coverage at the end of your term without medical evidence. This is a good thing if your health has changed and you would not qualify for new coverage but a bad thin from a pricing perspective because the guaranteed rates are typically much higher than a new policy with new underwriting.

Term Life Insurance in Convertible

Most policies are convertible. This means the policy owner can ‘convert’ or change from term insurance to permanent insurance without any medical questions. Converting the entire amount of coverage is not required – each company will have their own minimum insurance amount and could range from 10K to 25K. This conversion option must be exercised before a certain age set by each company individually but normally around age 71.

Building on the above example, the same 30 year old couple could reach age 65 and decide to ‘convert’ 25K of their remaining 250K policy into permanent insurance to cover final expenses or legacy wishes.