Ladder Your Life Insurance and Save Money!

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Do you buy a 10 year term, 20 year term, 30 year term, or some type of permanent life insurance?

You probably like the cost of the 10 year term plan but know that you’ll really need coverage for longer than 10 years.

Since all rates are based on age and health, you really want to buy the longest duration plan you may want while you’re younger and healthier, but maybe that 20 or 30 year policy is more expensive than you’d like.  So what do you do?

No worries, it’s perfectly acceptable to buy two or more different policies at varying amounts and durations.

If you really need $1,000,000 of life insurance but can’t decide between 20 and 30 year term, buy one $500k- 20 year policy and one $500k- 30 year policy!

Like the saying goes, “don’t have all of your eggs in one basket.” Plus, buying two or three different policies at varying duration will be less expensive than buying one larger plan at longer duration.

For example:

  •  A $1,000,000- 30 year term policy for a 40 year old male in good health costs $1,160 per year.
  •  A $500,000- 20 year term costs $350 per year plus a $500,000- 30 year plan costs $615 per year which is a combined cost of $965 per year. 
  •  Buying the two $500,000 policies at varying durations will save you $195 per year compared to buying the one $1,000,000- 30 year term policy.

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Your mortgage may be your biggest debt, and laddering coverage as you pay down your mortgage can also make sense.  Buying one 10 year, one 20 year, and one 30 year policy can save you 25% to 35% or more on your life insurance cost compared to buying one larger policy for the full 30 years.

Laddering your term life insurance won’t usually make sense if you want to have a combined amount of term insurance that is less than $250,000.  The reason is that many insurance companies have a price-break at amounts of $250k and higher, so you pay less per $1,000 at amounts of $250k and up.  For example, buying one $125,000- 20 year term and one $125,000- 30 year term will usually cost more than buying one $250,000- 30 year term plan.

Banner Life Insurance Company has a nice option where they’ll allow you to ladder your life insurance at a slightly discounted rate for each additional policy you purchase.  You could pay less by laddering with Banner Life than you would with other insurance companies.

You could also ladder your policies and include one policy that offers living benefits, as this is a niche that only a few term insurance carriers are currently offering.  The advantage to this is one of your term policies would pay out benefits while you are still alive if you were diagnosed with a terminal illness, a chronic illness for which you may need long term care or home health care, or a critical illness like a heart attack, invasive cancer, stroke, etc.

For example, say you want $500,000 of term insurance and you are a 40 year old male in good health.  You like the idea of the potential to get living benefits from your policy should you ever need it, but a $500,000- 30 year plan with living benefits is more than you want to spend.  You could buy a $250,000- 30 year term plan with living benefits for $373 per year and a $250,000- 15 year straight term plan for $155 per year.  This combination will save you $162 every year but could still provide income to you while you’re alive if you have an illness or accident and you need money!

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I also find that many people like the idea of having some permanent life insurance, but they are not willing to pay what a larger permanent life insurance policy would cost.

For example, a 40 year old male in good health would pay $2,793 per year for a $500,000 guaranteed universal life rate, which would provide guaranteed coverage for life at a rate that will never increase.

If you really need $500,000 of life insurance and like the idea of having a portion of that being permanent life insurance that is guaranteed for the rest of your life, you could buy a $250,000- 20 year term plan with annual cost of $205 and a $250,000 guaranteed universal life policy with annual cost of $1430. This combination would save you $1,158 every year compared to buying the full $500,000 as guaranteed universal life.

If you need less permanent life insurance, you could also buy a $400,000- 20 year term plan for $292 per year and a $100,000 guaranteed universal life policy for $609 per year.  This combination would save you $1,892 per year compared to purchasing the full $500,000 as guaranteed universal life.

You can buy ANY combination of term insurance and/or permanent life insurance to best suit your needs, so pick your budget and see what combination of policies may work best for you!

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