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Layering Term Life Insurance

  • Oct-23-2015
  • Richard Reich

You know you need term life insurance but you can’t decide on the death benefit amount or the length of term because you see the needs changing over time. You might be a good candidate for laddering or layering term life insurance policies.

As an example, we have a 45 year old married male with two children, ages 5 and 10. He has 10 years left to pay off his mortgage. Looking at his needs, we see his insurance needs as the following:

  • Ages 45-55 – $2 million to replace his income, cover the mortgage, college costs and final expenses.
  • Ages 55-65 – $1 million to replace income, cover college costs and final expenses.
  • Ages 65-75 – $500,000 to replace income (or pension) and final expenses.

Typically, he might look at these options;

  • He could purchase a $2 million permanent policy but the premiums are cost prohibitive;
  • He could purchase a $2 million 30 year term policy, but the premium might still be more than he wants to spend;
  • He could purchase a $2 million 10 year term policy and plan to purchase an additional policy in 10 years but he might not be insurable at that time or;
  • He could purchase a $500,000 30 year term policy but that would leave him under insured for the first 20 years.

Here’s where layering can come in handy. I would recommend:

  • A $1 million 10 year term policy and;
  • A $500,000 20 year term policy and;
  • A $500,000 30 year term policy.

This would give him $2 million for the first 10 years, $1 million for the next 10 years and $500,000 for the next 10 years.

As you can see above, this would provide the right amount of coverage at the lowest possible premium. We don’t recommend this for everybody, but in the right situation, it saves the client money while giving him adequate coverage.

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    • Intramark Insurance Services, Inc., Insurance Services, Glendale, CA

    • Intramark Insurance Services, Inc.