To get the most affordable term life insurance rates, it can be a good idea to layer your policies. After all, your financial commitments aren’t all going to last for the same amount of time…why should your life insurance coverage? By buying several smaller policies instead of one big policy, you can make sure you’re meeting your family’s needs without breaking the bank.
Layering policies works especially well for:
- Families with young children
- Small business owners
- New homeowners
Evaluate your financial obligations
To see why layering policies works, you need to think about your financial commitments. Take a minute to jot them down, along with how long each one will last. Here are just a few examples:
- Your mortgage. This is probably the largest financial commitment you have. How many years are left on it? If you have 26 years, for example, you would want a 30-year term policy for the amount you currently owe.
- Your children. How old are they? How many more years until the youngest turns at least 18? You might want a second policy that covers the cost of running a household until the time your last child leaves the nest.
- Education. Are you planning to help your kids through college? How long until your youngest child will finish his or her schooling? If your kids are under age 10, a 20-year term policy would cover you until this financial obligation is complete.
Save money by layering policies
Your next step is to add up the total cost of all the obligations you have. You can price a single policy for that face value, and then price two or three smaller policies with different term lengths. The layering strategy is going to be more affordable virtually every time.
Layering also saves you money in the future. Let’s say your children will be done with college in 10 years and your mortgage will be paid off in 25. If your main financial obligation to your children is over, why would you want to keep paying for a large 30-year policy? Your payments will decrease over time as the shorter policy terms expire. You end up with the right amount of coverage at the right time.
Ready to see this strategy in action? Let’s say John and Jane are married, with a new mortgage (29 years left, $300,000) and two kids (ages 3 and 7). John wants to buy a term policy so Jane and the kids could stay in their home if something happened to him. He also wants to make sure both kids go to college.
Strategy 1: Buy a single policy
Let’s say John’s total financial commitments add up to $1.1 million over 30 years, even though some some of those commitments will be over after 20 years. If he bought a 30-year policy for $1.1 million, he would pay approximately $1,140 per year for 30 years.
His total financial outlay? About $34,200.
Strategy 2: Layer policies
Now let’s say John decides to layer his policies. He buys two different policies:
- 20-year term, $800,000. This policy will cover John’s financial commitment to his family until his children are out of college. It costs roughly $575 per year for 20 years.
- 30-year term, $300,000. This policy will cover John’s mortgage. It costs roughly $363 per year for 30 years.
His total financial outlay? $22,390.
John saves more than $202 per year for the first 20 years.
John saves more than $777 per year for the last 10 years.
John’s total savings over 30 years: $11,810.
What would you do with $11,810? Give us a call at 800-823-4852 and we’ll help you layer policies to meet your financial goals!*This example is fictitious in nature and represents a situation a consumer could face.