laddering life insurance

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Topic Author
bling
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laddering life insurance

Post by bling » Mon Nov 04, 2019 8:53 am

I just kicked off applying for life insurance and I've been crunching a bunch of numbers and I've basically got something like this:

Annual income x 5.0, 10 years
Annual income x 3.5, 20 years
Annual income x 1.5, 30 years

The 30 year already exists, so I'm just laddering on the 10 and 20 year. I'm including survivor benefits which is why my calculation is lower than the 10x income ballpark.

Other threads I've seen on this topic are more "simple", eg all polices have the same face amount, only the term changes.

In my case, my 10 year has a much higher face value, because I expect that in those 10 years I would have saved enough and investments would have grown to be able to supplement.

This all assumes of course that I don't lose my job, I maintain my savings rate, etc.

Any insights on my thought process? Or should I consider lowering my 10 year face amount and increasing the 20 year? Perhaps even adding on a 15 year?

Thanks!

Edit: I'm in my mid 30s, and got two young kids and stay at home spouse.
Last edited by bling on Mon Nov 04, 2019 11:01 am, edited 1 time in total.

UnLearnYourself
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Re: laddering life insurance

Post by UnLearnYourself » Mon Nov 04, 2019 9:02 am

Have considered doing the same...so just posting so I can return to read the thread later.

bberris
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Re: laddering life insurance

Post by bberris » Mon Nov 04, 2019 9:13 am

Sounds like a good plan. You might also consider a simple decreasing benefit life, if such a thing exists. What you want to avoid is having a very long term level-premium life that you later think you don't need or that you may cancel. These contracts make you pay extra in the early years while getting a nice benefit for the premium in the later years. Don't cancel it.

KT785
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Re: laddering life insurance

Post by KT785 » Mon Nov 04, 2019 9:21 am

I considered a laddered approach when I was getting life insurance squared away a few years ago. However, after running the numbers and discussing the strategy with my broker (found through Term4Sale) I opted to go with a single policy for the maximum term/benefit I could conceivably need.

In my experience, the savings in executing a laddered strategy wasn't that great considering, with a single large policy, I could reduce the benefit amount in the future as my needs changed. If for some reason I needed that higher coverage for longer than intended (job change/loss, lower growth on investments, health issues) I still could still have that coverage . . . . not to mention the impact of inflation naturally reduces the value of the benefit over the life of the policy.

Also understand that there's a base insurance/admin charge in each individual policy you buy (separate from the actual cost of coverage)--so with three policies, you're paying that charge three times over.

Overall, I'd evaluate the true cost savings of a laddered strategy vs. a single policy.

KT785

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David Jay
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Re: laddering life insurance

Post by David Jay » Mon Nov 04, 2019 9:22 am

I don’t know your age, but if you are 35-40 you will likely find that the 10 year is dirt-cheap. The 30 year is proportionately way more expensive than the 20 year.

15 year is probably overkill, wait until you see the rates. If 20 year is still reasonable then just use that.
Last edited by David Jay on Mon Nov 04, 2019 9:51 am, edited 1 time in total.
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WWJBDo
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Re: laddering life insurance

Post by WWJBDo » Mon Nov 04, 2019 9:27 am

If you believe that your investments can be condensed into 3 products, then your life insurance needs certainly can be fulfilled by 3 products as well. Don't over-complicate things. Each policy takes some non-zero amount of time and effort to maintain.
I did essentially what you did, in a less optimal way by having multiple, staggered policies all in 10 year level term, renewing some (with a repeat physical exam and lab testing) and letting others end without renewal.

As an aside, I was lucky and it worked out for me renewing only 10 year term- I'm at a point now where I don't need insurance and when the last policy reaches it's term, I am done with life insurance. But the ladder approach is much smarter. If I had become sick -particularly with a cancer, autoimmune disease or other chronic disease then policy renewal is prohibitively expensive, if you can get it. Over the past 10 years, cancer has turned into a chronic process now that takes years before you die, depleting your savings in the process. Life insurance in such a situation makes all the difference in the world to those you are about. If, for example, you are diagnosed with cancer 7 years into a 10 year term policy, there is a good chance the policy will end before you die and then you cannot renew.
"It is difficult to get a man to understand something when his salary depends upon his not understanding it." Upton Sinclair

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Raymond
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Re: laddering life insurance

Post by Raymond » Mon Nov 04, 2019 9:32 am

bling wrote:
Mon Nov 04, 2019 8:53 am
I just kicked off applying for life insurance and I've been crunching a bunch of numbers and I've basically got something like this...
How old are you, your spouse, and children (if any)?

Thirty years seems a like a rather long term, unless you're in your 20's.

I'm in my mid-50's, and my twenty-year level term policy expires in ten years, which is a couple of years after my youngest child is projected to graduate from college.
"Ritter, Tod und Teufel"

HomeStretch
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Re: laddering life insurance

Post by HomeStretch » Mon Nov 04, 2019 3:32 pm

Perhaps a two-tier ladder of 20 and 30 year terms are all you need.

A 10 year term doesn’t seem to make sense unless it’s tied to your mortgage payoff date. In 10 years, your teen children and SAH spouse likely still need support.

20 year term makes sense to support your children through college and becoming self-sufficient.

As you are mid-30s, 30 year term makes sense to support spouse until SS/Medicare and see your mortgage paid off.

Be sure to buy enough coverage. My guess is you need at least $1 million total to cover kids, college, mortgage, and SAH spouse (who may not be marketable enough to command a high salary upon return to work force).

BruDude
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Re: laddering life insurance

Post by BruDude » Mon Nov 04, 2019 3:46 pm

Have you priced a policy with Banner Life where they issue a single policy that's already laddered so you just pay one premium with one company? Might want to check that out if you haven't yet. Sometimes it's the cheapest option, sometimes it's not. That way you avoid paying three separate policy fees (these are built into the price of each policy, generally $50-150 per policy).

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Stinky
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Re: laddering life insurance

Post by Stinky » Mon Nov 04, 2019 4:21 pm

bling wrote:
Mon Nov 04, 2019 8:53 am
I just kicked off applying for life insurance and I've been crunching a bunch of numbers and I've basically got something like this:

Annual income x 5.0, 10 years
Annual income x 3.5, 20 years
Annual income x 1.5, 30 years

The 30 year already exists, so I'm just laddering on the 10 and 20 year. I'm including survivor benefits which is why my calculation is lower than the 10x income ballpark.
If it works for you and your financial plan, I'm fine with it.

Check out BruDude's idea above about checking with Banner Life. He says they could provide the same benefit structure within one policy, rather than three.
It's a GREAT day to be alive - Travis Tritt

KT785
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Re: laddering life insurance

Post by KT785 » Mon Nov 04, 2019 4:44 pm

UnLearnYourself wrote:
Mon Nov 04, 2019 3:25 pm
37 yrs old, 31 yr old wife, 9 month old baby, baby #2 expected in April

~ $100k salary + ~ $20k in rental incomes. Wife currently staying at home but will return to some degree of work/earning in a couple years
Combined my wife and I have approximately $300k in retirement/long term savings. ~ $100k in equity in our home

Have $190k in life insurance through my work, for the term of my employment.

Considering adding the following:

30 yr term
$750k
$63.88/mo

If I were to ladder it:

10yr term
$250k
$19.91

20yr term
$250k
$22.09

30yr term
$250k
$26.25

So $68.25 premium for first 10 years, then $48.34 over next 10 years, then $26.25 for the final 10 years. Takes me to 67 yrs old.

TOTAL premiums non-laddering policies: $22,996.80

TOTAL premiums laddering policies: $17,140.80

So the total savings in premium would be $5,856 over the course of the 30 years (or $16.27/mo). Question I need to ask/answer is what do I prefer, the $5,856 in my pocket or the extra coverage over the course of the 30 years. As always I'm open to any thoughts, opinions, or corrections on this outline.
As mentioned in my prior post, I'd evaluate options to reduce coverage within a single, 30 year policy during the life of the policy. Most policies should allow you to reduce the coverage amount at least once over the term (likewise reducing the premium). You could get the max amount needed for 30 years and reduce the coverage in 10 years, or perhaps in 10 years you may still need that coverage amount--either way this gives you options.

I'd also contemplate the impact of inflation on those amounts . . . $250,000 will be worth quite a bit less in 20 years.

KT785

Topic Author
bling
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Re: laddering life insurance

Post by bling » Mon Nov 04, 2019 6:36 pm

BruDude wrote:
Mon Nov 04, 2019 3:46 pm
Have you priced a policy with Banner Life where they issue a single policy that's already laddered so you just pay one premium with one company? Might want to check that out if you haven't yet. Sometimes it's the cheapest option, sometimes it's not. That way you avoid paying three separate policy fees (these are built into the price of each policy, generally $50-150 per policy).
A single policy is comparable if all policies have the same face amount. But in my current plan, my 10 year policy is more than 3x the face amount for my 30yr policy.

So, if I were to get a single policy to replace them all it would be significantly more expensive than my laddered plan. The first year the premium would be 35% more expensive.

BruDude
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Re: laddering life insurance

Post by BruDude » Mon Nov 04, 2019 6:56 pm

bling wrote:
Mon Nov 04, 2019 6:36 pm
BruDude wrote:
Mon Nov 04, 2019 3:46 pm
Have you priced a policy with Banner Life where they issue a single policy that's already laddered so you just pay one premium with one company? Might want to check that out if you haven't yet. Sometimes it's the cheapest option, sometimes it's not. That way you avoid paying three separate policy fees (these are built into the price of each policy, generally $50-150 per policy).
A single policy is comparable if all policies have the same face amount. But in my current plan, my 10 year policy is more than 3x the face amount for my 30yr policy.

So, if I were to get a single policy to replace them all it would be significantly more expensive than my laddered plan. The first year the premium would be 35% more expensive.
You can have the policy laddered with different amounts for different term periods within a single policy. It just eliminates paying for three separate policy fees.

Fire2030
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Re: laddering life insurance

Post by Fire2030 » Mon Nov 04, 2019 7:01 pm

bling wrote:
Mon Nov 04, 2019 8:53 am

Annual income x 5.0, 10 years
Annual income x 3.5, 20 years
Annual income x 1.5, 30 years
I am curious as to why the amounts are based on the Annual income vs Annual Expenses and time to FI. When I did this last year, I ended up with laddering based on 1st Kid getting launched and paying off the mortgage for the 1st 10. Second one for 20Yr, for the 2nd kid and also accounting for FI for the Spouse if she chooses not to work for rest of her life.
If the stock market continues the climb and the savings rate stays the same, I might cancel the 20Yr after full FI.

Fire2030
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Re: laddering life insurance

Post by Fire2030 » Mon Nov 04, 2019 7:02 pm

WWJBDo wrote:
Mon Nov 04, 2019 9:27 am
..... I'm at a point now where I don't need insurance and when the last policy reaches it's term, I am done with life insurance. ....
Just curious at what point do you consider yourself self-insured... 33x or 50x expenses ?

Dopey
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Re: laddering life insurance

Post by Dopey » Mon Nov 04, 2019 7:08 pm

I sort of did this. I got a 15yr & 30yr, to supplement my employer benefit.

Basically, my 15yr includes the cost of college for my 3 kids. I figure if I kick it after 15 yrs, I’ll have college mostly saved for anyway.

I purchased when I was 32.

Topic Author
bling
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Joined: Sat Jan 21, 2012 12:49 pm

Re: laddering life insurance

Post by bling » Mon Nov 04, 2019 7:28 pm

BruDude wrote:
Mon Nov 04, 2019 6:56 pm
bling wrote:
Mon Nov 04, 2019 6:36 pm
BruDude wrote:
Mon Nov 04, 2019 3:46 pm
Have you priced a policy with Banner Life where they issue a single policy that's already laddered so you just pay one premium with one company? Might want to check that out if you haven't yet. Sometimes it's the cheapest option, sometimes it's not. That way you avoid paying three separate policy fees (these are built into the price of each policy, generally $50-150 per policy).
A single policy is comparable if all policies have the same face amount. But in my current plan, my 10 year policy is more than 3x the face amount for my 30yr policy.

So, if I were to get a single policy to replace them all it would be significantly more expensive than my laddered plan. The first year the premium would be 35% more expensive.
You can have the policy laddered with different amounts for different term periods within a single policy. It just eliminates paying for three separate policy fees.
hmmmm, i applied through policygenius, and the agent that was taking my info during the initial application didn't mention anything about this. they just noted down that they would apply for two policies for me. pretty sure policygenius works with banner, so i'll see whether that's an option. i really don't wanna take the medical exam more than once...

Topic Author
bling
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Joined: Sat Jan 21, 2012 12:49 pm

Re: laddering life insurance

Post by bling » Mon Nov 04, 2019 7:30 pm

Fire2030 wrote:
Mon Nov 04, 2019 7:01 pm
bling wrote:
Mon Nov 04, 2019 8:53 am

Annual income x 5.0, 10 years
Annual income x 3.5, 20 years
Annual income x 1.5, 30 years
I am curious as to why the amounts are based on the Annual income vs Annual Expenses and time to FI. When I did this last year, I ended up with laddering based on 1st Kid getting launched and paying off the mortgage for the 1st 10. Second one for 20Yr, for the 2nd kid and also accounting for FI for the Spouse if she chooses not to work for rest of her life.
If the stock market continues the climb and the savings rate stays the same, I might cancel the 20Yr after full FI.
you are correct. in my spreadsheet i used a target salary that i want to replace, calculated how much money i would have saved, plus investment growth, and ended up having this weird ladder thing that i have. it's an imperfect science. but basically, due to compound interest, investments grow faster and faster, so the insurance needs drops the same amount, hence why my ladders are the way they are.

Bobby206
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Re: laddering life insurance

Post by Bobby206 » Mon Nov 04, 2019 7:32 pm

I'd round up as if you die, I assume, you don't want your family to have a fear in the world about running out of money. They may, or may not, be a spreadsheet ace like you. Everybody understands millions of dollars though. I don't sell insurance but to me term is so cheap at your age I'd get extra.

Fire2030
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Re: laddering life insurance

Post by Fire2030 » Mon Nov 04, 2019 7:38 pm

bling wrote:
Mon Nov 04, 2019 7:30 pm
you are correct. in my spreadsheet i used a target salary that i want to replace, calculated how much money i would have saved, plus investment growth, and ended up having this weird ladder thing that i have. it's an imperfect science. but basically, due to compound interest, investments grow faster and faster, so the insurance needs drops the same amount, hence why my ladders are the way they are.
Makes sense, thanks.

BruDude
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Re: laddering life insurance

Post by BruDude » Mon Nov 04, 2019 8:32 pm

bling wrote:
Mon Nov 04, 2019 7:28 pm
BruDude wrote:
Mon Nov 04, 2019 6:56 pm
bling wrote:
Mon Nov 04, 2019 6:36 pm
BruDude wrote:
Mon Nov 04, 2019 3:46 pm
Have you priced a policy with Banner Life where they issue a single policy that's already laddered so you just pay one premium with one company? Might want to check that out if you haven't yet. Sometimes it's the cheapest option, sometimes it's not. That way you avoid paying three separate policy fees (these are built into the price of each policy, generally $50-150 per policy).
A single policy is comparable if all policies have the same face amount. But in my current plan, my 10 year policy is more than 3x the face amount for my 30yr policy.

So, if I were to get a single policy to replace them all it would be significantly more expensive than my laddered plan. The first year the premium would be 35% more expensive.
You can have the policy laddered with different amounts for different term periods within a single policy. It just eliminates paying for three separate policy fees.
hmmmm, i applied through policygenius, and the agent that was taking my info during the initial application didn't mention anything about this. they just noted down that they would apply for two policies for me. pretty sure policygenius works with banner, so i'll see whether that's an option. i really don't wanna take the medical exam more than once...
Policygenius agents are going to be order takers, not agents that can really add anything constructive or think outside the box. There’s a reason they work for PG instead of selling on their own.

Topic Author
bling
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Joined: Sat Jan 21, 2012 12:49 pm

Re: laddering life insurance

Post by bling » Wed Nov 06, 2019 2:08 pm

so i went back and asked more questions. the laddered banner policy is not something they normally do, but can provide a quote if needed, so i guess i'll ask for it so i can see what the numbers are.

separately, the current company that i have an application open for, does allow lowering the face amount once a year. however, the agent also says that when i do that, i would be repriced at my current age at the time. no medical exam. is this normal? i priced it out with term4sale and this convenience seems pretty expensive, because as a 50 year old, 10 year policies are pretty expensive even with preferred-plus health.

BruDude
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Location: Las Vegas

Re: laddering life insurance

Post by BruDude » Wed Nov 06, 2019 3:01 pm

bling wrote:
Wed Nov 06, 2019 2:08 pm
so i went back and asked more questions. the laddered banner policy is not something they normally do, but can provide a quote if needed, so i guess i'll ask for it so i can see what the numbers are.

separately, the current company that i have an application open for, does allow lowering the face amount once a year. however, the agent also says that when i do that, i would be repriced at my current age at the time. no medical exam. is this normal? i priced it out with term4sale and this convenience seems pretty expensive, because as a 50 year old, 10 year policies are pretty expensive even with preferred-plus health.
Your policy would not be repriced, it would be a pretty linear reduction in cost unless you drop below the "price break" thresholds which are often $100k, $250k, $500k, and $1M. Some companies will let you reduce the amount as many times as you want, some will only let you do it once, some only after the first 3 years, etc. The agent doesn't sound too experienced if they are telling you the policy will be repriced to your current age when you reduce the benefit amount. I've never heard of a company doing that, but I suppose it's possible....if that's the case I'd buy from a different company though.

They make the same amount of money with a laddered Banner policy as selling you three separate ones, but with one-third of the work, so I'm not sure why they wouldn't want to offer it in the first place unless they just weren't aware of it...

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