How Laddering Life Insurance Works

Shawn Plummer

CEO, The Annuity Expert

Life is uncertain, and securing our family’s future is one of our utmost priorities. But how do we choose the right insurance plan to serve our unique needs at different stages of life? This is where the concept of laddering life insurance comes into play.

What is Laddering Life Insurance?

Simply put, laddering life insurance is a strategy where you stack multiple life insurance policies with varying term lengths instead of buying one hefty policy. This approach offers flexibility as it lets you adapt your coverage to match the changing needs of your life stages. It’s about breaking down one extensive policy into several smaller ones – like rungs on a ladder, each serving a particular time frame and purpose.

For instance, you might opt for a 30-year term policy when you’re young, have a mortgage, and have children who are financially dependent on you. As your mortgage decreases and your children grow up and become independent, your need for that extensive policy also decreases. So, shorter policies expiring during these transitions can save you significant premiums over time.

Laddering Life Insurance

Who Needs Laddering Life Insurance?

Life insurance laddering isn’t a one-size-fits-all solution. It fits particularly well for those anticipating significant financial responsibilities changes. Young parents with a mortgage and dependents can benefit significantly from this approach. Similarly, those with business loans or other significant debts can also consider laddering life insurance policies.

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What Does it Mean to Ladder Your Life Insurance?

Laddering your life insurance means purchasing multiple policies with different term lengths based on your anticipated future financial needs. As your financial obligations decrease over time (like paying off a mortgage or raising children), so does the required coverage.

Here’s an example: You could have a $500,000 policy for 30 years, a $300,000 policy for 20 years, and a $200,000 policy for ten years. The total coverage would be $1 million initially, but as each policy expires, the coverage (and your premium payments) decreases, reflecting your reduced financial liabilities.

What Kind of Insurance is Ladder Life?

Laddering can be done with term life insurance policies. Term life insurance provides coverage for a certain period, usually 10, 20, or 30 years, which fits perfectly with the concept of laddering. Remember, the primary purpose of this strategy is to match the amount of insurance you have with the amount of need over time.

What is the Age Limit for Ladder Life Insurance?

Life insurance policies, in general, have age limits, which can vary based on the insurance company and the type of policy. For term life insurance, typically used in the laddering strategy, the maximum age at application often falls between 65 and 75 years. However, it’s always best to check with individual insurance providers, as policies may vary.

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How Do You Ladder Life Insurance Policies?

The process of laddering life insurance policies involves careful planning and a deep understanding of your future financial obligations, including considerations for social security. Begin by determining your long-term financial responsibilities, such as a mortgage, children’s education, or spouse’s retirement needs, and factoring in potential social security benefits.

Then, purchase multiple term life insurance policies with different expiration dates that coincide with the expected end of these obligations and the availability of social security benefits. This approach ensures that your loved ones are protected financially during the active years of your financial responsibilities and when social security benefits come into play.

To illustrate, let’s say you’re a 30-year-old parent with a mortgage and two young children. You could purchase a 30-year policy that covers until your mortgage is paid off, a 20-year policy that lasts until your children finish college, and a 10-year policy that provides extra coverage while your children are still young. By laddering your life insurance, you maintain high coverage when your financial obligations are most significant and reduce coverage as those responsibilities decrease. Doing so saves time while ensuring your loved ones’ financial security.

Next Steps

Adopting a laddering life insurance strategy could be an intelligent move regarding safeguarding your family’s future. It allows you to tailor your life insurance coverage to your evolving needs at different life stages. Though it may not be the perfect fit for everyone, it’s worth considering if your financial obligations are expected to decrease over time. The peace of mind gained from knowing you’ve safeguarded your family’s future, no matter what life throws your way, is indeed priceless.

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Frequently Asked Questions

How much life insurance should a person have?

The amount of life insurance a person should have depends on their needs and goals. Generally speaking, people should consider having enough life insurance to cover their debts and living expenses in the event of their death.

Is life insurance a good inheritance?

Yes, life insurance can be a great inheritance. There are many benefits to leaving life insurance as part of your legacy. With life insurance, you can ensure that your loved ones are financially taken care of when you’re gone.

Can you have two life insurance policies?

The answer is yes; you can have two life insurance policies. However, ensuring that your policies’ coverage does not overlap and that you are only paying for the coverage you need is essential.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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