Laddering Life Insurance Policies: What You Need To Know [2024]

Like most people, you probably think of life insurance as a one-time purchase: You buy a policy, and that’s it. But what if there was a way to save money when buying life insurance? That’s where the ladder life insurance strategy comes in.

The ladder strategy is a way to save money on your life insurance rates by dividing your coverage into several different policies. You can then stagger the policies so that you’re not paying rates for coverage you don’t need. 

For example, you might have a policy that covers you until you reach age 65, another that covers you until age 75, and a final policy that covers you until you die. Read on to learn how to make the ladder strategy work for you.

What is the ladder strategy?

The ladder strategy is a common term life insurance strategy that you can use to help meet various financial goals. The strategy involves purchasing multiple life insurance policies with different death benefit amounts and coverage periods. 

Therefore, this allows the policyholder to “ladder” their policies so that as one policy expires, another is still in place. The ladder strategy can provide short-term or long-term protection and save money on insurance rates. 

For example, let’s say you have a term life insurance policy for $500,000 that expires at age 65 and another term life insurance policy for $250,000 that expires at age 75. This way, you have coverage for the time being. Then, as you age and may not need as much coverage, your rates will decrease.

What are the benefits of laddering life insurance policies?

Several benefits come with laddering life insurance policies, including: 

• Tailor your coverage to your specific needs and circumstances. Having multiple policies allows you to assign a specific purpose to each policy and tailor your coverage accordingly.
• More flexible coverage. Laddering allows policyholders to adjust coverage as their needs change. This is unlike a single life insurance policy, which typically has fixed coverage for the duration of the policy. 
• Lower costs. Since laddering involves owning multiple policies with different expiration dates, you only pay for the coverage you need at each stage of your life. As a result, you can save money in the long run by not paying for coverage you may not need later in life. 

These are just a few ways laddering can save you money on life insurance. Keep reading for more ways to lower life insurance rates without sacrificing coverage.

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How To Save Money With the Ladder Strategy

As mentioned earlier, laddering your life insurance policies can save you money. As each policy expires, you can reassess your coverage needs and choose not to renew policies that are no longer necessary. The ladder strategy can also add flexibility to your life insurance plan. 

For example, a major life event occurs (such as having a child or buying a new home), and you need to increase your coverage. With the ladder strategy, you can add a new policy to your existing plan instead of having to buy a whole new, larger policy.

How to Ladder Your Life Insurance

Say, for example, you determine that you need $1 million worth of life insurance coverage. Instead of buying one $1 million policy, you could buy several smaller policies with different term lengths. You could purchase the following:

• A $250,000 10-year term policy
• A $250,000 15-year term policy
• A $500, 000 20-year term policy

As the shorter-term policies expire, you can ladder in new policies to keep your coverage intact. This strategy can save you money on insurance rates because shorter-term policies typically have lower rates than longer-term policies.

Consider How Much Life Insurance Coverage You Need

Before laddering your life insurance, know how much life insurance coverage you need to buy. How much life insurance coverage you need depends on factors like:

• Your current and future financial obligations (such as mortgages, debts, and dependents)
• Your income
• Your assets
• Any additional expenses your loved ones may have after your passing

How do you determine your life insurance needs? One common way to calculate life insurance rates is to use the “10 times income” rule. This rule of thumb suggests that you should purchase a policy worth ten times your annual income. 

However, this is just a general guideline. Your needs may be different. For example, you may need more coverage if you have a large family or significant debts. Alternatively, you may need less coverage if you are single and have no dependents.

Ultimately, the best way to determine your life insurance needs is to consult with a financial advisor who can help you assess your unique situation.

Review Life Insurance Coverage Regularly 

It’s important to review and reassess your life insurance coverage needs periodically, as they can change over time. It’s especially true if you’re using the ladder strategy, as policies will expire and change regularly.

As mentioned earlier, factors such as your financial obligations, income, and assets can all impact the amount of coverage you need. So, review your life insurance coverage at least every few years or anytime there is a major life event, such as getting married or having a child.

Life insurance for same-sex couples should also be taken into account often. As always, consider any changes or updates to your life insurance coverage with your overall financial plan in mind.

Shop Around for the Best Rates

When laddering your life insurance policies, shop around and compare rates from different insurance companies. Doing so can help ensure you get the best rates and coverage for your specific situation. 

Most insurance companies offer the ability to get quotes online, or you can speak with an insurance agent for personalized assistance. Find the best term life insurance companies here.

Who should use the ladder life insurance strategy?

The ladder strategy can benefit anyone looking for flexibility and potential savings on their life insurance coverage. 

However, it may be particularly useful for individuals with changing financial obligations, such as those with changing income levels or dependents at different life stages (such as young children or adult children in college). Buying life insurance for children is also different than buying your typical policy, so talk to a life insurance professional before making a purchase. 

Overall, the ladder strategy can be a helpful tool for individuals looking to tailor their life insurance coverage to their unique needs and circumstances. 

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Best Strategies When Shopping for Life Insurance

When shopping for life insurance, it’s good to consider your options and potential strategies. Along with laddering, some other strategies to consider include:

• Purchasing a policy with a longer term length. This can add stability and potentially lower rates in the long run.
• Adding riders to your policy. Riders add additional coverage, such as long-term care or disability, at an added cost.
• Looking into other different types of life insurance. Term life insurance is the most common, but there are also options such as whole or universal life insurance.
• Purchasing a combination of term and whole life insurance. Combining these policies can provide both short-term coverage and long-term savings opportunities. You can read more about the best whole life insurance companies in this article. 

No matter what kind of policy you need, the best strategy when shopping for life insurance coverage is to compare multiple quotes. Find at least three insurers you like and compare life insurance quotes from each to see which offers the best rates.

Case Studies: Laddering Life Insurance Policies

Case Study 1: The Young Family

John and Sarah, a young couple in their 30s, decided to use the ladder strategy to optimize their life insurance coverage. They purchased three policies: a 20-year term policy with a $500,000 death benefit, a 30-year term policy with a $250,000 death benefit, and a permanent life insurance policy with a $100,000 death benefit.

By laddering their policies, they ensured that they had coverage for different stages of their lives, allowing them to save money on premiums while maintaining adequate protection for their family.

Case Study 2: The Business Owner

Emily, a 45-year-old business owner, implemented the ladder strategy to meet her changing financial obligations. She purchased a 15-year term policy with a $1 million death benefit and a 25-year term policy with a $500,000 death benefit.

As her business grew and her financial situation improved, Emily decided to add a new 10-year term policy with a $500,000 death benefit to her existing coverage. This way, she could adjust her coverage as needed without overpaying for unnecessary protection.

Case Study 3: The Empty Nester

Mark and Linda, empty nesters in their 60s, wanted to downsize their life insurance coverage while still maintaining some level of protection. They had a 30-year term policy with a $1 million death benefit that was about to expire.

Instead of renewing the policy, they decided to ladder their coverage by purchasing a new 10-year term policy with a $500,000 death benefit. This allowed them to save money on premiums while still having coverage in place for their remaining financial obligations.

Final Thoughts on Laddering Life Insurance Policies

The laddering strategy for life insurance policies is a great way to save money and ensure you have the coverage you need. First, it is essential to consider how much coverage you need and review your policy regularly to ensure that it still meets your needs at different points in your life. 

Then, shop around for the best rates. You can consider other potential strategies, such as adding riders or a combination of term and whole life insurance. In all cases, consulting with a financial advisor can help you make the best decision for your specific circumstances.

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