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Laddering Your Term Insurance

Buying life insurance is not a one stop event in your life. It is more of a process rather than an event. As with life itself, everything financial in your life is constantly moving and changing, albeit slowly.

The amount of life insurance you need is also a moving target that increases or decreases as you move into or out of debt, as your income increases or plateaus or in some cases decreases. While there are many types of coverage including permanent coverage (whole life) and temporary coverage (term) among others, this blog is about the laddering of term.

Let’s say you need $1,000,000 of insurance today to eliminate a mortgage and replace income for your family at your death. There are several ways to accomplish this; but at what cost? Let’s assume you are a 30 year old male, a non-smoker and in average health.*

A 10 year term will provide the $1,000,000 with a premium for 10 years of $45.00** per month. Because the premium for 10 year term increases every 10 years, beginning in year 11, the premium increases to $174.60 per month until year 20. Your total premium after 20 years is $26,352.00

As an option, you may have chosen a 20 year term for the same $1,000,000. The premium here is $64.80 per month for 20 years, so the premium over 20 years would be $15,552.00.

When you ladder your coverage, this opens opportunities for considering your future need and how it might change. You might say your need for coverage is $1,000,000 today, but in 10 years the need might drop down to $500,000 because the mortgage will be gone. In this case, you might want two policies. One $500,000 10 year term, plus one $500,000 20 year term; thus laddering your coverage. The premium for the 10 year term is $27.45 per month for 10 years after, at this time you would cancel the 10 year term. The premium for the 20 year term would be $35.55 per month for 20 years. Combined the overall premium for both 10 and 20 year term would be $11,826.00.

When laddering your insurance, you are building in a planned decrease in coverage, thus you are customizing your premium.  Be as creative as you need to be. You can also add in some permanent life insurance to provide insurance that would be in place to your age 100. Laddering also works well with Critical Illness Insuance.

For more information or for a consultation, please contact Corry Collins.

*Term prices for female’s are generally less.
**Sample premiums offered by one carrier in Canada. This is not a quote. E&O

If you are in Nova Scotia and would like some insurance advice, please contact Corry Collins:
corry@maritimewealth.com
902-444-7000

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