“Laddering” life insurance means you buy two or more life insurance policies with different terms. The goal of laddering is to save money by planning for decreasing life insurance coverage over time.
It can make sense to ladder your life insurance policies when you expect the amount of insurance you need will decline over time.
For many people, insurance needs decline over time. You should start by buying the amount of life insurance you would need if you were gone tomorrow. Then each year that you live and work is one less year you need to insure. If you’re paying down debt and saving each year, your growing net worth can reduce your insurance need if your lifestyle remains steady.
Laddering Life Insurance: How You Could Save Money on Life Insurance
Sometimes, laddering can save money because you're choosing not to carry as much life insurance coverage. If you go from $5 million coverage to $2 million coverage, that can be meaningful savings.
Additionally, laddering means less insurance in your older years, which are the more expensive years to insure. (Life insurance is more expensive in older years because the odds of a person dying go up with age.)
Laddering Life Insurance: Two Things to Look Out For
1) Your insurance need does not decrease over time
For some people, their income will increase and their lifestyle will expand alongside their increased means. In that case, planning to reduce life insurance coverage over time would not make sense.
2) The premiums you’d save are not that much money compared to the coverage you’d give up OR it actually costs more
Be particularly careful if you’re considering total life insurance coverage of $2mm or less - you might find that laddering doesn’t save you enough money to be worth it, and it can sometimes cost more to ladder.
For people who are under 40 and in very good health, the savings are often not that great, especially on coverage amounts $2 million and less.
Whether or not laddering makes sense depends on the specifics of your situation -- once you know how much coverage you need, we can explain the numbers to see if laddering makes sense for you.
Want a magical tool to help you figure out life insurance? Our interactive Life Insurance Guide asks you a few short questions to calculate your coverage amount and suggested term.