Laddering Life Insurance: How to Build the Right Strategy

As your life changes, so should your life insurance coverage. After all, the coverage needs you had when you originally purchased your policy may have changed over time. You want to make sure that you’re prepared for these changes so that your loved ones stay protected, and stacking life insurance policies can help and can even lower the cost of your life insurance over time. Let’s walk through what you need to know about stacking life insurance policies, also known as a life insurance ladder or life insurance laddering.

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What is Life Insurance Laddering?

Life insurance laddering refers to the practice of stacking multiple term life insurance policies of various lengths so that they expire over time. This allows you to customize your coverage to address different financial needs at different life phases, such as mortgage payments, children's education, income replacement, and retirement planning. Overall, life insurance laddering can offer peace of mind that you’re prepared for evolving financial responsibilities and obligations at different stages of life.

How Laddering Life Insurance Works

Laddering life insurance involves purchasing multiple life insurance policies with different coverage amounts and term lengths to meet varying financial needs at different stages of life. For example, you might buy a large policy with a 30-year term to cover long-term obligations like a mortgage, along with smaller policies for shorter terms to cover temporary needs such as raising children or paying off smaller debts. As time goes on, some policies will expire, and the coverage needs may decrease, allowing you to adjust your insurance without paying for unnecessary coverage.

Benefits of Laddering Your Life Insurance Policies

Laddering gives you the opportunity to customize your life insurance coverage to the different stages of life, helping you prepare for the future and ensure continuous coverage as your financial needs change. Some of the specific benefits of life insurance laddering include:

Cost-Effective Coverage

Laddering allows you to match your coverage levels with your actual needs at different life stages, potentially reducing the risk of over-insuring and paying unnecessary premiums.

Customized Protection

Different policies with varied term lengths can be aligned with specific financial milestones, such as paying off a mortgage, children becoming financially independent, or reaching retirement age.

Adaptability and Flexibility

As certain financial responsibilities decrease over time, policies can be allowed to expire or be adjusted, providing a flexible approach to managing coverage.

Risk Mitigation

Laddering helps mitigate the risk of being underinsured or overinsured at any given point in life, providing a balanced and adaptable approach to life insurance planning.

Potential Drawbacks of Laddering Life Insurance

While laddering life insurance has its benefits, such as flexibility and cost-effectiveness, there are potential drawbacks to consider:

Cost Considerations

While the strategy can help save on premiums in the short term by purchasing term policies at different ages, the cumulative cost of several policies over time may be higher than just maintaining one larger policy. As you age, the cost of renewing term life insurance policies may increase, especially if your health changes.

No Cash Value

Unlike whole life insurance or universal life insurance, term life insurance policies—often used in laddering—do not build cash value. This means you're not accumulating savings or investment potential with these policies, which can be a disadvantage if you’re looking for more than just life coverage.

Policy Expiration

If you fail to properly ladder your coverage or miss updating policies as your needs change, you might find yourself without adequate life insurance coverage when you need it most, especially as term policies expire.

Who should consider the ladder strategy for life insurance?

The ladder strategy for life insurance can be a good fit for individuals or families who have changing financial responsibilities over time. This may include:

Young Families: Parents with young children or significant debt (like a mortgage or student loans) may want higher coverage in the early years to ensure their family is protected financially. As the children grow and debts decrease, they can reduce coverage and lower premiums with the laddering approach.
Business Owners: Entrepreneurs who have growing businesses may need substantial life insurance coverage initially to protect their company or dependents in case of an untimely death. Over time, as the business stabilizes and debts are paid down, they can decrease coverage while still maintaining adequate protection.
People with Temporary Financial Obligations: Individuals with temporary financial responsibilities (e.g., paying off a home loan or funding a child's education) may benefit from laddering, as they can set up policies that expire when these obligations are met rather than overpaying for long-term coverage.

How to Ladder Life Insurance Policies

The process of laddering life insurance policies can be broken into just a couple of simple steps.

Assess Your Short- and Long-Term Financial Needs

Knowing why you’re purchasing life insurance will help you tailor your life insurance coverage to only pay for what you truly need. Consider financial obligations like mortgage payments, debt repayment, and the cost of putting children through school.

Determine Coverage Amount and Term Lengths

You’ll want to choose the coverage amounts and term lengths you’ll need at each stage of your life, considering factors like outstanding debts, future expenses, and income replacement needs. You’ll then stagger the expiration date of each policy to coincide with the expected reduction in financial obligations over time. This allows for a gradual decrease in coverage as your specific financial responsibilities diminish.

Let SelectQuote Help Save You Money

With so many options available, shopping for life insurance can quickly become overwhelming, especially if you’re considering an approach like life insurance laddering. SelectQuote is here to help you navigate your options with ease. We’ll take the guesswork out of your hands by comparing a variety of life insurance quotes from trusted carriers in just minutes, making sure you have the right coverage for your needs and budget at any stage of life.

Is laddering term life insurance good?

Laddering term life insurance can be a good strategy for many individuals, especially those with changing financial obligations over time. However, it requires careful planning and management to ensure you're covered appropriately as policies expire.

Is stacking term life insurance policies the same as laddering life insurance?

Yes, stacking and laddering are both terms used to describe the practice of buying multiple life insurance policies. The goal of both strategies is to save money and ensure coverage needs are met as they change over time.

Is Ladder a legit life insurance company?

Ladder is an online-based life insurance provider founded in 2015. Its policies are issued by established companies Fidelity Security Life and Allianz Life Insurance Company of New York.

How do I estimate coverage using a ladder strategy?

To estimate coverage using a ladder strategy, consider your current and future financial obligations. Start by identifying your largest, long-term financial responsibilities (e.g., mortgage, child education, business debt) and purchase a term life policy that covers these needs for a longer term. Then, identify temporary obligations, like raising children or paying off smaller debts, and purchase smaller policies with shorter terms that correspond to when these obligations will end.