Life Insurance Laddering
Life insurance laddering involves purchasing multiple term life policies with different term lengths to cover various current and future financial obligations. The amount of life insurance needed changes throughout a person’s life. For example, you could purchase three-term policies from highly rated well know companies.
One policy can be purchased for $1,00,000 for 30 years, especially if you are young and just starting out or just married. It is surprising how inexpensive the life insurance rates are for coverage is at younger ages. You could purchase another term policy for $750,000 for 20 or 25 years to cover a mortgage. And a final term policy for $500,000 for 10 or 15 years to cover future college costs for your children. Term insurance is America’s top choice for laddering life insurance. The new accelerated underwriting processes used by many companies speed up the life insurance approval process.
Note, life insurance laddering at younger ages may not be worth it. Since life insurance premiums are low, you may not save much. However, when you are 30 or 40 years old, laddering can work very well for your financial obligations. Also, if you have a complicated medical history, you may save money by using this strategy.
Creating a life insurance term ladder is something worth considering. It can reduce the cost of your life insurance premiums by purchasing policies with different lengths instead of getting one expensive 30-year term life policy. Life insurance laddering may sound complicated, but it isn’t.
How Life Insurance Laddering Can save you money
By using the strategy of insurance laddering, you address different financial responsibilities that you face at different times in your life. Over time the amount of life insurance needed changes. And that $1,000,000 you purchased ten years ago may now only need to be $500,000 to cover your obligations. If you carry only the life insurance coverage, you need the saving is available for things other than life insurance premiums.
The amount of coverage and how long your policy lasts determines the price. The ladder strategy takes advantage of ensuring that you only pay for the life insurance you need, and by locking in a rate when you are young and healthy.
There Are Drawbacks to Life Insurance Laddering
Along with the benefits of life insurance laddering, there are drawbacks to creating an insurance ladder. It can be beneficial for families who want to save money on insurance premiums. However, you need to map out your current financial obligations and the financial needs you expect to incur in the future. It is essential to complete a needs analysis. And if you are uncertain about current and future financial responsibilities, life insurance laddering might not be the best strategy to use.
You might purchase one more significant life insurance policy, and then as your life insurance requirements decrease, decrease the face amount of the insurance you’re currently carrying, which will reduce the life insurance premium you are paying. Be sure to make sure that you can decrease the death benefit. Some companies may not allow a decrease in face value.
What about changing financial needs?
Life Insurance laddering assumes that your life insurance needs decrease not increase over time. What happens if you must refinance your home or maybe purchase a second home? Or if your children return home to the nest for some reason? Let’s say you have a family medical emergency and incur significant debt due to medical bills.
You expected your debt to decrease over time, not increase. Your plan then changes, and you needed more life insurance than you figured. We cannot plan for every financial situation in the future. It pays to purchase an adequate amount of insurance to cover the unexpected. Several factors determine the amount of life insurance you qualify for. Primary considerations are your age and income.
Life Insurance Laddering Is a Little More Complicated
Laddering life insurance is more complicated than just buying a single policy. You can carry your multiple policies using only a single carrier; however, it is usually less expensive by using different companies. If you use different companies, you have various sets of paperwork and multiple bills to pay.
Laddering life insurance carries benefits. You can save money on life insurance premiums. However, there are drawbacks since you do not know what to expect in the future, and underinsuring may leave you without enough insurance coverage. However, it is certainly worth considering.
No Need for Face-To-Face Meetings
Changes in technology have brought about many changes in the life insurance industry. One difference is the elimination of face-to-face meetings with an insurance agent. This meeting is no longer necessary. Although some companies still require that the agent and client meet face-to-face. However, many insurance companies have eliminated the requirement. Today companies have incorporated e-signature and DocuSign via the internet as well as using voice signature through the use of the phone, a more advanced approach, and faster approach. You can even run a needs analysis, health analyzer, receive quotes, select a product, and a carrier and complete a pre-application on your own!
Use An Independent Agency Rather Than a Captive Agent
A captive agent must offer you limited products from the company that has “captured” and contracted them to solicit insurance. A captive agent limits your choices of finding the best company at the best price, with the quickest turn around time. Also, be aware of many of the larger agencies that continuously advertise on the radio, which in reality only represent a handful of companies.
The key to finding the best life insurance quotes is to use an agency that represents multiple carriers. Strahan Financial Services works with the top best life insurance companies. Many of these companies have been around for a very long time are very well known and highly rated. We only use the top 1% of the 852 life insurance companies in the U.S. Many use the accelerated underwriting process. Let us put our expertise to work for you.