Understanding Term Laddering
At JRC Insurance Group, our goal is to offer customized advice to each of our clients for their unique situations.
In some cases, we when we see an opportunity to save our clients money, without risking valuable coverage or diminishing benefits, we make certain recommendations for more affordable life insurance. One of these strategies is laddering (or layering) term lengths, or term maturities.
The strategy is simple.
While most people who are considering longer terms, such as 20 or 30 year term, purchase a single policy to fit their needs, the laddering strategy has you purchase two policies totaling the same amount of coverage you currently need, but with a shorter length term mixed with the longer term.
For example, instead of purchasing a 30 year term for $1 million dollars, you might purchase two policies for $500,000 each, one with a 15 year term, and the other with a 30 year term.
The result is typically a savings of 15%-25% on your term life insurance.
Just be aware that the plan going in is to let the first policy go (the one with the shorter term length) when its level term has expired. For example in a 15 year term, the premiums will be guaranteed to stay level the first 15 years, and then increase every year thereafter. There is typically a sizable jump in rates in that 16th year. Clients often see rates increase 8-10 times or more.
Therefore, it’s important you understand that going in, and realize you will most likely let that first policy go when the premiums increase, leaving you with the second policy through the end of its (longer) level term.
If term premiums are at all unclear, click here for our guide on term life insurance.
Who Should Ladder Their Term Maturities?
This strategy works well for individuals who need a large amount of coverage today, and either cannot afford to pay 20 or 30 year term rates for the full amount they desire, or are prudently planning for their financial future, and won’t need the full amount for 20 or 30 years.
Say, for example, that you are paying down your debts and investing for retirement. You might look at your financial plan with your financial adviser and determine that you won’t need as much coverage 15 to 20 years down the line. In that case, why pay for it? The laddering strategy is perfect for you.
You may find it helpful to visit our life insurance rates by age guide, to help determine your life insurance needs and cost of insurance over time.
For more information, call us at 855-247-9555.