When you invest in life insurance, you’re basically setting a safety net for your loved ones. In the event that you get sick or pass away, your loved ones could use your life insurance benefits to cover the bills and other financial obligations. In general, life insurance plans in Taylorsville and other areas come in two categories: term life and whole life policies. But did you know that you could create an insurance ladder?
What Exactly is Insurance Laddering?
Financially speaking, when building a ladder, you are essentially building rungs by buying different types of the exact same thing at the same time. This means you could add different versions of one financial product to your investment portfolio so that your investments could mature at varying times. When investing, you are locking your money in something for a predetermined amount of time. When you build a ladder, you reduce your investment risk and are guaranteed regular cash flow.
When building a life insurance ladder, you’ll need to buy multiple term life insurance plans with varying terms. For instance, you could buy three different life insurance plans worth $250,000 each from your insurance provider, with one of them lasting for 10 years, one lasting for 20 years, and the last one lasting for 30 years. You can even opt to buy a life insurance plan with a 30-year term and buy additional insurance plans later.
Is Life Insurance Laddering a Good Idea?
Building a life insurance ladder might be a viable option if you are looking to access specific benefits. For example, you may be able to minimize your life insurance premiums because you’ll be buying plans with varying terms rather than taking out one costly 30-year whole life or term life plan. Likewise, as your shorter plans mature, your premiums would instantly go down. In addition, you could address the various financial hurdles that you might face at different points in your life.
One other hand, laddering life insurance policies will not work for everyone. Buying multiple life insurance plans all at once can result in problems because you can’t possibly know what types of financial hurdles you will face in the future. Furthermore, life insurance laddering is essentially founded on the belief that you will need more coverage when you buy a home and have children, and less coverage when you get older and are nearing retirement.
However, there’s also the chance that having less insurance coverage when you’re older could backfire on you if you need extra money for addressing emergencies or buying another property.
There are advantages and disadvantages to building a life insurance ladder. If you can determine the financial needs you will face in the future or are looking to reduce the cost of your insurance premiums, then laddering might make financial sense to you. However, if you are not sure about what might happen to you and your family in the future, then insurance laddering might not be a good option for you. Talk to a financial management professional if you’re unsure about your options.