Last Updated on March 7, 2019 by lifepolicyshopper
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Checkout the special spreadsheet that assists you calculate the total FEGLI cost over your career along with the article Low Cost Term Life Alternative to FEGLI Option B.
Life Insurance Ladder Term Policies and Save 15%
For most people, the need for life insurance decreases over time. During your working years, the need for life insurance typically decreases because your savings are increasing, the balance on your mortgage (and other debt) is decreasing, and the number of years for which your children will be financially dependent upon you is decreasing.
A person’s life insurance needs might look something like this:
A current need for $1,500,000 of death benefits.
A projected need for $1,000,000 of death benefits for the period 10-20 years from now.
A projected need for $500,000 of death benefits for the period 20-30 years from now.
No or minimal projected need for death benefits after 30 years.
For this person, rather than buying a $1.5 million 30-year policy, there’s an opportunity to save some money by “laddering” life insurance term life insurance policies. That is, break the coverage up into a few policies of varying terms: a $500,000 10-year policy, a $500,000 20-year policy, and a $500,000 30-year policy.
Using lifepolicyshopper.com, I get the following premium estimates for a hypothetical male non-tobacco user, 30 years old, living in Richmond, Virginia, with average health status:
$1,500,000 30-year policy: $2,050 annual premium
$500,000 30-year policy: $730 annual premium
$500,000 20-year policy: $465 annual premium
$500,000 10-year policy: $310 annual premium
Life Insurance Ladder Term Policies and Save 15%. In other words, the laddering of three smaller policies results in a savings of $545 per year for the first 10 years, which increases to $855 of savings per year after 10 years, and $1,320 of savings per year after 20 years. Not the sort of thing that will dramatically change a person’s life, but enough to add up to a very meaningful amount over time.
When projecting how much life insurance you will need at some point in the future, be sure to include a guesstimate for inflation. $500,000 of death benefits 25 years from now will surely be worth less than it would be worth tomorrow.Here is an actual case in which we helped a client achieve great savings and get the required amount of low-cost life insurance coverage in force.
He is buying a business and needs $1,500,000 of coverage to secure his loan over 20 years. Placing Paul’s insurance was a bit of a challenge because he chewed tobacco and that limited our use of carriers that would provide coverage at an increased cost. Most carriers would quote smoker rates which would double the payment. We looked across our portfolio of contracted carriers and found a company that would not charge smoker rates to a chewer. After we explored those options and mentioned this was the best we could do, we worked through the structure and numbers of laddering the policies. This is the email explaining the rates if he bought this coverage using the technique of laddering term policies.
Here's the email I sent:
...Good news is we can save $4k by laddering (like we discussed on the phone).
20 year, $1,500,000 at Table 4 rates is $21,619 annually
Life Insurance - Ladder Term Policies and Save 15%
The most optimal laddering to lower the premiums and keep enough in force to cover the loan is this scenario:
$375,000 20 year term: $5580.25
$375,000 15 year term: $4310.50
$375,000 10 year term: $3607.38
$375,000 10 year term: $3607.38
Every 5 years, you'll drop a policy.
This is the best scenario possible over the course of the loan.
Needless to say Paul was thrilled at the coverage we were able to put in force that day. A scenario like this can save you around $4K a year and ensure you get a loan. Independent Life Insurance Agents cast the widest net of carriers and have the greatest ability to put these deals together for you when you need it at a great price.
Let’s take laddering a step further with using a new product from Banner Life. Banner Life offers the OPT Term 30 product that provides a base term rider policy and ladders riders onto the base policy to save in administrative costs and makes payments easy using consolidated billing.
Laddering life insurance coverage allows clients to purchase the right amount of protection when they need it most. The Term Rider is an additional insurance rider that provides temporary coverage for a shorter time period than the level term period of the base policy. Using the Term Rider is a cost effective way to protect clients from being over-or underinsured as their financial responsibilities change over time.
Meet Brad and Angie.
Brad, age 40, is the primary breadwinner for his family of five and plans to retire from his current job as a junior executive at age 70. He and his wife, Angie, have a daughter, age 12 and twins, age 7.
All three children are expected to attend college. Their mortgage, currently $300,000, has 20 years remaining. Brad and Angie’s life insurance need include income replacement, mortgage payoff, and college tuition, bringing their grand total to coverage requirement to $2.1M.
1. 30-year term base rider with a face amount $1,500,000
2. 20-year rider with a face amount of $300,000
3. 15-year rider with a face amount of $100,000
4. 10 year rider with a face amount of $200,000
Total annual premium is $2,175.77
If you were to use separate term policies the cost would be $2,537.98 (a 15% savings). Using one plan with riders save costs in administration and gives you the convenience of consolidated billing.
Term Rider Benefits:
SAVE MONEY for clients with no policy fees
EASY PAYMENTS with consolidated billing
MULTIPLE RIDERS of shorter durations
RIDERS AUTOMATICALLY drop off
CONVERTIBLE while in force
Take a look at your situation and see if laddering term policies is right for you and your family. Get a quote today by completing the online quote tool.
We like laddering and the Banner Life OPT Term Riders products for Career Federal Employees because when you turn 45 you can reduce FEGLI coverage to basic when those costs start increasing and carry basic FEGLI coverage into retirement and stop paying premiums at age 65 and own a minimal death benefit after the term policies expire for the rest of your life as we discussed in our previous article..