Buy An Online Life Insurance Policy or Ladder Policies

Shopping for the perfect online life insurance policy can be overwhelming, but with Quotacy at your side, it doesn’t have to be. Let us help you consider your options when you need to fill gaps in coverage.

Here we highlight when it might be beneficial to purchase multiple life insurance policies online. This is called laddering life insurance policies.

Can You Have More Than One Life Insurance Policy?

It’s common to own different life insurance policies with different term lengths or coverage amounts. Your needs change as life goes on. Most young families have the greatest financial need the first twenty or so years after starting a family. The majority of earned income goes toward a mortgage or rent and raising children.

Take a look on the Quotacy Dashboard screenshot below. This is a common scenario.

For example, let’s say you just purchased a home and had a baby. Your mortgage is a 30-year term loan and you owe $250,000. You can buy a term life insurance policy to cover this loan and ensure your family can keep living in the home if you died suddenly. Or, if you live a long, happy life, the coverage is designed to drop off once the mortgage loan is paid. Using the Dashboard you can give your policy a name. I just named this one For the Mortgage.

You can also purchase a second term life insurance policy to provide support to your partner during the years your children are growing up. Kids are expensive. If you died unexpectedly during those first 20 years while your kids aren’t yet quite adults and dependent on you and your spouse, not only would your beneficiaries receive the $250,000 death benefit from your 20-year policy, but they would also receive the additional $250,000 from the 30-year policy.

These policies provide support to your loved ones should you pass away during their most financially-vulnerable years.

How Much Life Insurance Can I Buy When Laddering Policies?

Life insurance companies do not have restrictions when it comes to buying multiple policies—as long as the coverage amounts are justified.

For example, a single, childless person making $50,000 a year cannot justify buying multiple million dollar insurance policies on him (or herself) for two reasons:

The insurance company would be cautious as to why someone with no spouse or children would want to insure themselves with that much coverage.
They would be wary of the person’s ability to consistently afford the premiums.

There are a lot of costs that go into insuring someone including administrative costs, the medical exam and testing costs, and potentially having to pay out a large death benefit, so life insurance companies weigh all the risks for those who apply for coverage.

That being said, if you have the justification and insurable interest for owning multiple life insurance policies, then doing so can be very beneficial. Let’s go over a few scenarios in which laddering life insurance policies may be a good idea.

» Calculate: Online life insurance policy needs

Scenario 1

You want life insurance coverage to ensure your children will have money for college, your mortgage will be paid, and to provide income replacement to your spouse in case you die prematurely. Instead of purchasing a single $1,000,000+ dollar life insurance policy, you can layer multiple policies to save money and avoid being over-insured.

Policy 1: $500,000, 10-year term policy to cover your children until they reach adulthood

Policy 2: $300,000, 20-year term policy to cover your mortgage

Policy 3: $250,000, 30-year term policy to replace your income for your spouse until he/she reaches retirement

By layering these policies, for the first 10 years you will have over one million dollars in coverage. Then the amount of coverage (and what you pay in policy premiums) will decrease as your insurance needs decrease.

Because your age and health play a significant role in determining your policy premium costs, buying the policies all at once, instead of waiting for when the needs arise, can save you money. The longer you wait, the older you get, and the chances of health issues appearing will increase.

Scenario 2

You and your spouse work well-paying, steady jobs, have a generous savings and retirement portfolio, and are parents to two young children under the age of 5. You still owe $350,000 on your 20-year mortgage. You know that if one of you died prematurely, the other could afford a nice funeral and pay off any final expenses. You mainly just want to ensure your children get a good education and that your family can continue living in your home.

You could purchase a $400,000, 20-year term policy to ensure your mortgage would be taken care of and a second $150,000, 30-year term policy to ensure both of your children are taken care of and can go to college. Once your mortgage is paid off, you could let the $400,000 policy expire leaving you with 10 years left of coverage on an additional policy, just in case.

Owning two separate policies instead of one $550,000 policy provides flexibility and affordability.

Scenario 3

You are a husband, father, and business owner. You plan on retiring in 20 years, you have 15 years left on your mortgage loan, and your children are ages 10 and 15.

You could purchase an online life insurance policy—a permanent (whole life) insurance policy. This would ensure your wife would have money in her retirement years to replace social security benefits, cover estate taxes, funeral costs, and any other final expenses.

You could add a 20-year term life insurance policy that is structured to fund a buy-sell agreement to protect your business. This would ensure that if you died prematurely the remaining business owners would have the funds to buy your share at a previously agreed upon price; this arrangement allows the surviving owners to keep the business while your family still gets a payout. This business policy would be owned by the business or the other owners of the business.

You could also add an additional 15-year term policy to cover the remainder of your mortgage and both of your children’s education.

Now, why would you purchase three different policies here instead of just one?

With multiple policies in place, once your children are grown and you’re retired, you can let the term policies expire. Rest easy knowing you’re still on this side of the grass and that you have a permanent life policy locked in place to cover final expenses.

Owning additional term policies instead of a large permanent life policy for all those years would align better with your needs, be more affordable, and allow for different ownerships.

» Calculate: Online life insurance policy needs

Purchasing multiple life insurance policies with different amounts and term lengths is a great strategy known as laddering.

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Owning Multiple Life Insurance Policies

In many cases you can save money by owning multiple life insurance policies, but it’s important to note that each policy has a fixed policy charge.

By owning more than one you would be paying more than one annual policy charge (a nominal $50 fee or similar.)

Also, each of your policies would be subjected to the insurance costs associated with policies within that band of coverage. The larger the policy, the lower the costs are per thousand of coverage as they cross those bands.

» Compare: Term life insurance quotes

You can have multiple policies from different insurance carriers.

Let’s say you purchased a $150,000, 20-year term policy from Insurance Company A before you had children. You now have a baby on the way and want more coverage, but discovered Insurance Company B has better rates. You are free to apply to the second company and still keep your first policy.

Life insurance is very flexible and can be structured to fit your individual needs. If you are unsure what your coverage needs are or whether multiple policies would be in your best interest, contact Quotacy to learn how to get an online life insurance policy—whether you need one or multiple term life policies.

Photo credit to: www.RachelMFry.com

About the writer

Natasha Cornelius

Writer, Editor, and Co-host of Quotacy's Q&A Fridays

Natasha is the content manager and editor for Quotacy. She has been in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. When not at work, she's probably studying and working toward her Chartered Life Underwriter (CLU) designation while throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.

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