How to stack life insurance policies

Life insurance is essential to cushion the financial hardship in the event of loss of income or the death of you or your spouse. With so many options on the market, beginners often feel overwhelmed by the information overload.

Customers investing in Certificates of Deposit (CDs) are the prime example of Insurance Laddering. They typically purchase CDs of varying maturities that maintain a continuous cash flow for them.

Building a ladder strategy with your insurance policies is about narrowing your options and maintaining optimal coverage when you need it most.

How to save money with insurance ladder strategies

With the ladder of insurance strategy, instead of relying on a single insurance policy, you would buy multiple policies with different durations. This allows you to maximize coverage when you need it most, which is typically before retirement.

Depending on the CV events you have planned for your future, you can prioritize which guidelines would benefit you the most at different timelines. In this way, you can reduce investments from superfluous policies and focus on the cheaper ones.

Determination of the sums insured

If you’re single and just started earning, you might not think twice about insurance. However, the situation changes radically once you get married and have children.

In addition to financing your children’s school and college education, other factors such as mortgage, pension and loss of income also play a role. Most importantly, “How will the family cope if I or my spouse die?” is the question most people ask at this stage.

In order to achieve optimal coverage, it is advisable to consider all of these options. If your children become self-employed and your debts decrease later in life, you can reduce the sums insured and save on premiums.

How to stack insurance policies optimally

For example, consider a 30-year-old man with two children who need $2 million in coverage on a 30-year policy. Suppose the mortgage is paid off in 10 years and after 20 years their children become independent. In such a case, the insurance ladder may look like this:

  • A 30-year policy for $10,00,000
  • A 20-year policy for $500,000
  • A 10-year policy for $500,000

If the insured person dies within the first 10 years, their family will receive a $2 million death benefit. If they died between 10 and 20 years after the policy was taken out, the family is entitled to a $1.5 million death benefit. Finally, if the insured dies after 20 years, their family will receive $500,000 as a death benefit from the remaining policy.

Save money with insurance ladder strategies

First and foremost, purchasing insurance policies when you are young will cost you significantly less in premiums. Short-term laddering policies are the best way to add coverage when you need it most.

The premiums for a 30 year policy would be lower than for a 20 year or 10 year policy. A single 30-year policy covering $1.5 million can net you about $2,000 in annual premiums. On the other hand, the breakdown of annual premiums for stacking policies would look something like this:

  1. A 30-year policy: $700-750
  2. A 20-year policy: $450-500
  3. A 10-year policy: $300-350

The total premium of stacked policies is approximately $1500 annually. That’s a $500 savings you can make instantly by simply stacking multiple insurance policies instead of settling on a single policy.

Some insurance providers may not allow policy stacking with them, but given the sheer number of options available in the market, this shouldn’t be a cause for concern. For more information and to learn more about stacking life insurance policies, please contact us today.

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