Term Laddering: What is it and how does it affect your life insurance policy?

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When you purchase life insurance, you are purchasing a safety net for your family and loved ones if something happens to you. If something does happen to you, your family members can use your life insurance benefits to cover any financial obligations and/or debts you may have, and meet other ongoing financial needs, particularly if you were the sole financial provider.

Life insurance ladder policies are a type of life insurance policy.

Let’s dive into what they are, how they work,  and how they are beneficial. 

What are ladders?

The amount of life insurance protection that a person needs throughout their lives can vary. In order to only pay for the amount of life insurance protection you need at certain points in your life, you can purchase a laddered life insurance policy. 

Building a ladder in a financial sense involves creating ‘rungs’, or ‘steps’ – purchasing different versions of the same thing at the same time. In the life insurance sense, when you build a life insurance ladder, you are purchasing term life insurance policies with different term lengths. For example, you can purchase three different policies, each for $300,000, at the same time, but ladder these policies so that they last for different periods of time – 10 years, 20 years and 30 years. 

How does laddered life insurance save you money?

Laddered life insurance policies can reduce the cost of your life insurance policy over the longer term. The ladder strategy is designed with the following premise in mind – as you get older, your children grow up and your savings increase, which means your financial obligations decrease and you need less life insurance coverage. 

Laddered life insurance policies can reduce the cost of your life insurance policy over the longer term. Instead of purchasing a single, 30-year term policy, you purchase different policies at different lengths and ladder them on top of each other so that they expire at different times. As the laddered policies come to an end, the costs automatically go down, leaving you only with the coverage you need and premium payments lower.  

Why you should consider laddered life insurance?

The laddered life insurance strategy is a great way to lower your premiums if you are older, you know your circumstances are going to drastically change later in life, or you have a complicated health history. It is also a great method to use if you think your life insurance costs are high and you know there are points in your life where your coverage requirements and needs are going to drastically change. 

Everyday Life prides itself on life insurance recommendations that are tailored to your personal circumstances, thus a laddered policy. To get your own personalized life insurance recommendation – you can get started here. 

Disclaimer: The comments, opinions, and analyses expressed at Everyday Life are for informational purposes only and should not be considered individual investment, legal or tax advice.

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