Domonique Rodgers of NC State is an insurance agent with Family First Life. In the following article, Domonique discusses what life insurance laddering actually is, and answers the common question of why people would stagger life insurance at all.
Life insurance is one of the most reliable and celebrated tactics for providing coverage for oneself or one’s family. These life insurance policies can be made to work for the policyholder in multiple ways, one of which is known as the life insurance ladder strategy.
Domonique Rodgers of NC State explains that this strategy entails purchasing more than one life insurance policy and utilizing the remaining money after the expiration of one to fund other necessary costs, while saving thousands of dollars in premiums over the accumulation of years. The reason people use these strategies is that they only have to pay for needed coverage.
How to Ladder Life Insurance Policies
According to CBS News and agents such as Domonique Rodgers, the ladder strategy is based around the goal of using life insurance policies that work best for an individual without having to pay more than necessary.
The way that this strategy works entails purchasing term life insurance policies. Term policies are a type of coverage based on a contract that only lasts for a limited amount of time. Usually, this amount of time runs from anywhere between 10 years and a total of 30 years.
Domonique Rodgers of NC State says that the key to using the ladder strategy is to purchase more than one life insurance policy, each with differing expiration dates. The point of this is to maximize the benefits of having payout needs that actually get smaller as the policy holder gets older.
Basically, a life insurance ladder has a different term life policy for each major financial obligation, such as loans, debts, or even large purchases.
Each of these, in turn, has a different end point of coverage, meaning the holder’s obligation to pay will end when the expiration date arrives.
Purchasing life insurance and using the life insurance ladder strategy should be entirely based on an individual’s financial needs and general lifestyle.
Reasons to Utilize the Ladder Strategy
The reasoning behind life insurance laddering simply comes from the fact that stacking multiple policies with differing expiration dates can cost less each month than purchasing a single long-term policy that costs more.
Domonique Rodgers of NC State says that, for example, during the first ten years, a person generally has more need for life insurance. After all, young adults are typically juggling mortgage payments, saving up for the needs of one or more children, student loans, medical bills, car payments, and home loans.
When one has a strict plan for paying off their mortgage quickly, the cost of that mortgage disappears in a long-term budget. Domonique Rodgers of NC State notes that this easily translates to other financial needs that a policyholder simply won’t have forever, like the education of a child.
In these circumstances, having a life insurance ladder provides a policyholder with just enough coverage to take care of expenses at the end of their life. These can include funeral costs, medical bills, and some measure of income for a spouse or other dependents after one has passed away.
Commonly Used Ladder Policy Plans
The most commonly exercised way to use a ladder plan to save money is focused on saving on premiums. This is done by purchasing varied-length term policies, like the examples found below:
- $250,000 10-year Life Insurance Policy – This policy costs $13 monthly.
- $250,000 20-year Life Insurance Policy – This policy costs $18.04 monthly.
- $250,000 30-year Life Insurance Policy – This policy costs $28.36 monthly.
After purchasing all of these life insurance policies and making monthly payments to them, the policyholder will still at most only pay, during the first ten years with all three policies, $59.40 a month. Domonique Rodgers of NC State explains that this cost will gradually go down over the years.
Meanwhile, comparatively, purchasing a 30-year policy that has a value of $750,000 will always have an average monthly cost of $71.94.
In conclusion, Domonique Rodgers of NC State says that life insurance ladders are a useful strategy for purchasing more than one term life insurance policy. The best way to use this strategy is to add one policy of varying length for every major financial need on one’s budget. Gradually, the monthly payments recede over tens of years, making the life insurance ladder a popular option.