Category Archives: Personal Finance

What is Life Insurance Laddering?

When you purchase a life insurance policy, you are essentially providing your surviving loved ones with a financial safety net that will help them move on without your income stream. Life insurance policies will typically fall into three basic types of coverage: term insurance (temporary), whole life (permanent) and universal life (can be temporary or permanent). But, you also have the ability to build a life insurance plan which is commonly known as an insurance ladder or laddering.

What is an Insurance Ladder?

Just like a traditional ladder has rungs, an insurance ladder has rungs of different types of insurance that enable you to reach a financial goal at a more affordable cost. In other words, you purchase multiple types of insurance products that will allow your investments to mature at different rates.

Take CDs for example, you can ladder your CDs so that they mature at different times. Instead of buying one CD for $5,000, you can invest that money in a series of CDs that will mature at different times like one year, three years, and five years. You then have the option of reinvesting that money into another series of CDs or into one five year CD.

How do Life Insurance Ladders Work?

A life insurance ladder is simply a strategy for buying the coverage you need at the most affordable rate and only keeping that coverage for a necessary period of time. For example, if you want to make certain your 15-year mortgage is paid off if you die, why would you spend the extra money to purchase that coverage for 30 years?

It sounds complicated but it really isn’t. In fact, many insurance professionals recommend laddering for applicants who cannot pay the premium for their entire insurance needs.

It’s a common understanding the head of household will experience a drop in his or her insurance needs over time and a common problem that he or she may not have the resources to purchase their entire face amount needs early in life, even though this is when the rates are the lowest.

A Simple Case Study

Let’s say John and his insurance agent have determined that based on his insurance needs analysis he needs $1 million in coverage now, but he and his agent expect those needs to diminish as time goes by because debts will have been reduced and the mortgage will be paid down substantially. Here is how John can ladder his coverage to save substantial money:

$1,000,000 Life Insurance Coverage

Ladder Strategy versus Single Policy


Total Lifetime Cost of Laddered Policies: $13,587.60


Total Lifetime Cost of Single Policy: $25,120.80

Total Lifetime Premium Savings: $11,533.20


So then, let’s drill down to what’s going on here. First, we’ll consider the single policy for $1 million in coverage. John is a 36-year old non-smoker and in good health. His 30-year term policy without all the bells and whistles would cost him $69.78 per month, which translates into $25,120.80 for the life of the policy.

But according to John, he does not need the $1 million in coverage over the entire 30 year period because he knows when his debts will be reduced and when his mortgage will be paid off. So rather than buying a single policy, it makes better financial sense to ladder his coverage so that the face amount of his total coverage is reduced during key periods in his life which, in his case, can be accomplished by laddering three policies with different face amounts and for different terms.

John and his agent decide on the following strategy:

These policy purchases line up with the time periods that John has determined his debts and mortgage would be paid and therefore he would need less coverage. Plus, the laddered policies will have a substantial effect on how much John has to pay in premiums over the next 30 years.

During the first 10 years of the ladder, John will be paying $53.10 per month for all three insurance policies.

During the second 10 years of the ladder, John will only be paying $38.42 for two of the insurance policies.

During the third 10 years of the ladder, John will only be paying $21.71 for the remaining insurance policy.

By laddering his coverage, John will save $11,533 because he will not be paying for coverage he doesn’t need.

What are the Downsides?

Ladder strategies certainly aren’t for everyone. Since multiple policies are involved there is a little more time and effort spent shopping for coverage and have multiple policies issued. As far as service is concerned, a good insurance professional will make sure that you understand how service tasks are multiplied but your agent should be more than happy to help you with things like beneficiary changes.

Yes, if you should die unexpectedly in the first 10 or twenty years, your executor, attorney, or beneficiary will need to file multiple claims and present multiple death certificates. When you consider these issues, the fact that you’re saving thousands of dollars on your life insurance should certainly remedy any additional aggravation.


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I’m Good – I have Life Insurance at Work

As an independent insurance agent, I cannot remember how many times I’ve been told: “I’m good, I’ve got life insurance at work.” When I say I can’t remember, I mean I’ve heard this response so many times I’ve lost count. Please don’t misunderstand, it’s not a bad thing, in fact, I always congratulate prospective clients for taking advantage of group life insurance, especially if your employer will pay for it.

The problem is, most people are misinformed or simply don’t understand what group life insurance will and will not do for them. Yes, it will pay your beneficiary if you die while your policy is in force but there are some drawbacks in thinking free life insurance at work will take care of your surviving loved ones if you were to die unexpectedly. As a matter of fact, this problem is actually growing even though experienced agents continually attempt to help people understand that group life insurance contains some pitfalls.

Employer-Sponsored Coverage is Growing – Sort Of

In August of last year, LIMRA, an international life insurance, and market research association published their findings that more individuals were covered by employer-sponsored life insurance than by individual life insurance plans. Certainly, this would be a good thing if the majority of the employees also had their own individual life insurance policies but sadly they don’t.

Even though the number of employer-based insurance policies surpassed individual insurance policies by six million policies, the percentage of American households covered by employer-based life insurance was actually down when compared to the percentage in 2004.

What’s the Matter with Life Insurance through My Employer?

life insurance at work

If you have life insurance through your employer, congratulations; but how much do you have? A typical employer-based life insurance policy is one to three times your annual salary. So then, if you are earning $60k a year at work, you probably have $180,000 in insurance coverage which in most cases, is not enough for a typical family of four. Let’s do some math!

Living Expenses

First and foremost, if your family’s living expenses amount to $50,000 a year and it costs about $15,000 to bury you, what happens in year four? Typically what happens is your spouse has to scramble to make up the difference. Nothing else will matter. College tuition most likely won’t get covered, the mortgage is still due each month, and you can forget about investing for retirement.

Group Health Benefits

If your employer was paying the bulk of your health insurance, unfortunately, that goes when you go. Now we have to add the cost of health insurance to the surviving spouse’s expenses.

There’s No Place Like Home

In most family situations, the spouse helps make the mortgage payment. If your only insurance is through work, it’s unlikely that you’ll be able to leave a paid-for home to your family.

Coverage is Up to Your Employer

Most employees assume that once their employer provides them with life insurance, that BENEFIT can never go away. Sorry, but insurance is a benefit and is never guaranteed. If your employer decides they can no longer afford it and decides to discontinue paying the premium, you are now uninsured. Unfortunately, Uncle Sam will not step in and save the day, when it’s gone, it’s gone.

It’s Not Portable

In most cases, your employer-based life insurance doesn’t follow you if you leave your employer. If you are laid-off or fired or if you decide to leave and start your own business, your policy will typically not follow you. Sure you can always buy another one but what if you’ve developed a health issue like diabetes or high blood pressure? Now, your free insurance just turned into expensive insurance.

Okay, I get it, How much Insurance do I Need?

life insurance for freelancers

How much life insurance you need is one of the most important questions you can ask. But your employer-based insurance coverage is limited so it’s unlikely that you’ll have a choice when you are provided coverage.

Your insurance needs are based on various financial needs that your surviving loved ones will be facing when your income is no longer available. An experienced and reputable insurance broker will help you calculate your life insurance needs so you can arrive at the appropriate amount of coverage. When you have that amount calculated, you will understand how employer-based life insurance falls short when it comes to coverage.

You can even do this on your own so you’ll know your insurance needs before you contact an insurance broker. There are life insurance calculators online that will take you through a series of questions in order to calculate your life insurance needs and there is no obligation to buy anything.

How Can I Find the Lowest Rates?

This is actually the easy part. Technology today allows most insurance brokers to provide insurance costs online. Most have a Quote Engine on their website that will allow you to get quotes from many of the highly-rated insurance companies in the marketplace.

Once you know how much life insurance you need and the approximate monthly premium, it’s time to contact an independent insurance agent like LifeInsure.Com and finish the process by completing the application. The great thing about using an independent broker is that they are paid by the insurance companies so there is no cost for you to have them advocate for you. They will do the work to get your policy issued.



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What is the Accelerated Death Benefit?


For most people, their primary reason for purchasing life insurance is to provide funds to their surviving loved ones to reduce the financial stress that the loss of your income is likely to cause. Some people purchase life insurance for more specific purposes like paying off a mortgage (mortgage protection insurance), final expense insurance (paying for a funeral and other final expenses), and business continuation purposes like funding a buy-sell agreement or key person insurance.

In all of these cases, it is the ultimate death benefit that was the purpose of the insurance. You can, however, get living benefits from your life insurance other than the cash value that is a component of permanent life insurance. In fact, you can get living benefits included with a term life policy as well.


Accelerated Death Benefit – What is It?


The Accelerated Death Benefit (ADB) provides for the life insurance company to advance a portion of the death benefit to the policyholder and not the beneficiary. Each insurance company that offers this benefit sets specific guidelines on when it will be paid and how much will be paid, but most pay this benefit if the insured is diagnosed with a terminal illness that will likely result in death within one or two years.

There are, however, different situations when an accelerated death benefit rider (or a form of it) will be offered by the insurance company, but is always dependent on which company you purchase your life insurance policy from.

Terminal Illness Diagnosis

The terminal illness diagnosis was likely the original reason for the accelerated benefit rider. Life insurance companies started offering this rider (or adding it at no charge) for policyholders who were diagnosed with a terminal illness that would likely result in death within two years.

Its purpose was to provide a portion of the death benefit to the insured so they might comfortably cope with the costs of dying. It is suspected that the rider and its entrance into the marketplace may have been due to the many Americans infected with the AIDS virus. Over the last decade, life insurers have been offering the accelerated death benefit for even more reasons to help comfort their policyholders and the families of those policyholders. Some of the health issues that can trigger this rider are:


How Does it Work?


If your life insurance policy contains the ADB provision, upon receiving proof of your claim, the insurance company will advance a portion of the policy death benefit to the named insured in a lump-sum payment. How much the insured receives depends on the terms and conditions of the insurance contract and the face amount (death benefit) of the policy.

For example, Fred Wilson has a 30 –year term insurance policy that includes the ADB benefit with a policy face amount of $500,000. Fred is diagnosed with pancreatic cancer and is given a prognosis of 18 months.

After sending the required documents to the claims department, the insurance company offers Fred 50% of the death benefit and Fred accepts the offer. Fred receives a claim check in the amount of $250,000 with no taxes deducted.

It’s important to note that once the insured receives their ADB claim check, he or she can use it for any purpose they choose. The money is meant to make their passing more bearable and to financially help surviving loved ones, but if the insured chooses to go to Hawaii or pay off gambling debts, it’s their business.

What about Taxes on the Money?

accelerated death benefit


In most cases, the payout from the accelerated death benefit is non-taxable to the recipient just as the death benefit is non-taxable for the beneficiary. There are, however, certain situations where the recipient may have a tax liability and for that reason, it’s important to discuss your situation with a tax accountant.

Also, it’s important to note that receiving a large lump-sum payment could possibly affect your Medicaid or Supplemental Social Security benefits.


What Happens to the Death Benefit?

disability insurance


Any time an ADB is paid out on a policy, the amount of the death benefit is reduced by the amount of the ADB claim.

For example, in Fred Wilson’s case that was mentioned above, when Fred passes away, his beneficiary will receive $250,000 instead of the original death benefit of $500,000.

The Accidental Death Benefit should not be confused with borrowing cash value from a whole life or universal life insurance policy even though those permanent policies will likely also have the ADB rider built in as well.

It is also important to note that the ADB rider is relatively new and seniors who purchased insurance their life insurance before the late 1980s will not likely have this important rider available to them. For policyholders that have permanent life insurance policies with low face amounts like $20,000 or $30,000, claiming the ADB will typically reduce the death benefit to an amount that wouldn’t cover the cost of an average funeral so policyholders should beware.


In Conclusion


To learn more about the Accelerated Death Benefit and any other riders that are available for your life insurance, speak to an experienced and reputable independent insurance broker like to see which riders are the best fit for your circumstances.



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