Last Updated: 04/01/2018
If you’re like most Americans, your need for life insurance will decrease as you get older. As we age, our assets grow while our liabilities and debts decrease.
For this reason, most people have a decreasing need for life insurance coverage. A great way to manage this is by “layering”, or “staggering” multiple term life insurance policies.
In this article we’ll explain a few lesser-known insider’s secrets to help you get the most of your term life insurance policy.
Quick Article Guide:
1. Real World Example of Layering Term Life Insurance Policies
2. Layering Coverage Can Save You 30% or More on Life Insurance Premiums
3. Comparing The Cost Of A Single Term Policy To Three Layered or Staggered Term Policies
4. Saving Money by Having Your Death Claim Paid as an Annuity
5. Give Us A Call, We’re Here to Help!
Let’s take a look at Jim H., an actual client of ours. Jim called us a few months before his 50th birthday. He has two children in their early teens, a mortgage with about 15 years left, and he plans to retire when he turns 70.
Jim wanted to purchase enough insurance that if he died suddenly, his children have money for college, his house could be paid off, and his wife, Beth, could survive until she is able to get access to his retirement and savings. After he reaches retirement age, he will no longer need to carry life insurance.
In 10 years, when both of Jim’s children should have completed their education, his need for coverage will decrease. Jim wanted to set aside $125,000 for each child’s college expenses, a total of $250,000.
In 15 years, when Jim’s home is paid off, his need for life insurance will decrease again. Jim owes about $245,000 on his mortgage.
In 20 years, when Jim reaches retirement age, his need for life insurance will be finished. Until then, Jim wanted to provide $250,000 for Beth’s expenses. He felt that without a mortgage payment, a little over $1,200 a month would cover fixed expenses including taxes and utilities.
In this situation, most insurance agents, including the agent Jim talked to before us, would add the $250,000 + $245,000+ $250,000, round up to $750,000, (there’s a price break at quarter million $ increments) and recommend a level term policy for 20 years.
This strategy would be sufficient for Jim’s needs, but a larger expense than necessary. Jim’s situation is ideal for layering term life insurance policies.
Rather than one policy, we advised for Jim to purchase 3 separate term policies:
–One policy for $250,000 for 10 years to insure his children’s college expenses.
–One policy for $250,000 for 15 years to insure the balance on his mortgage.
–One policy for $250,000 for 20 years to insure replacement income for Jim’s wife until retirement age.
In this example, Jim will carry $750,000 of life insurance for 10 years until his children graduate from college. At that time, his 10 year, $250,000 policy will expire, reducing the cost of his coverage.
Over the next 5 years, Jim will continue to carry his 15 and 20 year term policies for $500,000 in coverage to secure replacement income for his wife and the balance of their mortgage. 15 years from now when the mortgage has been paid off, Jim’s 15 year policy will expire, further reducing the cost of his life insurance.
At this time, Jim will still carry his 20 year policy for $250,000 of coverage (from age 65 to 70). This will provide ample income protection for his wife, and bridge the gap to his planned retirement age of 70.
In the next section we’ll break down Jim’s actual cost of coverage to illustrate his savings.
Jim was approved as a “Preferred Risk”, the second best rate class available with most life insurance companies. A nice accomplishment after “30 years of good dinners and wine”.
The actual cost of each of the policies Jim was approved for are listed below. These rates are from an A+ rated life insurance company which has been in business for more than 100 years.
Let’s compare the monthly cost of buying one term policy to layering multiple term life insurance policies:
Jim’s Monthly Cost for a $750,000, 20-year term policy: $134.60 (Preferred Risk)
Jim’s Monthly Cost for a $250,000, 20-year term policy: $49.74 (Preferred Risk)
Jim’s Monthly Cost for a $250,000, 15-year term policy: $39.77 (Preferred Risk)
Jim’s Monthly Cost for a $250,000, 10-year term policy: $30.47 (Preferred Risk)
= $119.98 Total per Month
By layering Jim’s life insurance coverage across three term policies, he will save over $9,500 dollars in premiums over the next 20 years. Jim said he’ll likely want to work less and play more golf in the future, and that $9,500 savings will go a long way towards future greens fees! We’ve provided a breakdown of his insurance costs below:
|Single Term Policy: 20 years, $750,000||Initial Monthly Cost of Coverage:
|Monthly Cost After 10 Years:
|Monthly Cost After 15 Years:
|Total Cost over 20 Years:
|Three Layered Policies: 10, 15, and 20 years, $250,000 each||Initial Monthly Cost of Coverage:
|Monthly Cost After 10 Years:
|Monthly Cost After 15 Years:
Total Cost over 20 Years:
*Displayed monthly rates are from an A+ (Superior) rated company and are accurate as of 07/01/2017. Rates are provided for illustrative purposes only.
If Jim’s financial situation changes in a few years, and he no longer needs the same amount of coverage, he will also have the flexibility to cancel one of his policies. Unlike other types of insurance, canceling a term insurance policy is relatively easy…you can either stop making payments on that specific policy, or cancel your coverage in writing. Most importantly, there are no fees or penalties to cancel your coverage.
Having multiple insurance policies also provides some additional peace of mind as you reach retirement age. Not only will your cost of coverage decrease as you get older, you’ll also have more options to adjust your coverage if you hit hard times down the road.
Please Note: The insurance company requires just one free health exam if you’re purchasing multiple term life insurance policies. If you’re purchasing life insurance from more than one company, no problem. Our agency can send a copy of your lab results to each of the companies you are applying with.
When a policyholder dies and a life insurance claim is filed, the death benefit is generally paid to their beneficiary as a tax-free lump sum. While a lump-sum payment may convenient for people with large outstanding debts like a mortgage, some of our clients worry that their loved ones may not be the best at managing such a vast sum of money, especially while they are mourning. In these situations, we recommend setting up your policy’s death benefit as an annuity rather than a lump sum.
With an annuity, the insurer will pay the balance of your policy’s death benefit over time, allowing them to continue to earn interest on the remaining money they owe your beneficiaries. To make this option more enticing to policyholders, some life insurance companies will offer a discount to clients that opt for an annuitized payout, rather than a one-time lump sum. In fact, choosing an annuity payout on a life insurance policy can reduce the upfront cost of your premiums by up to 30%!
Having your policy’s death benefit paid as an annuity is also popular with clients who are purchasing a life insurance policy to fund a special needs trust. With a special needs trust, a portion your policy’s death benefit will be paid to your trustee each month as an allowance. In-turn, this money can be used to pay for a variety of expenses including; personal care attendants, personal care products, medical bills, vacations, and recreational activities.
Please Note: You must request the annuitized payout option when you apply for coverage to receive any available discounts. In addition. only a handful of top-rated life insurance companies offer this discount, so we always recommend working with an independent agent that represent multiple life insurance companies.
At Term Life Advice, we work with more than 60 top-rated life insurance companies to make sure our clients always receive the best options available, and the lowest rates.
Are you curious about layering term life insurance policies and want to see how much it could save you? How about learning what an annuity over lump sum death benefit would reduce your cost of life insurance? At Term Life Advice, our agents have the “insider’s knowledge” to help you navigate your options.
Our owner-operated agency represents over 60 top-rated life insurance companies, offering all types of coverage, regardless of your health and lifestyle. We offer the most affordable term coverage options for 10, 15, 20, 25, or 30 years, and guaranteed coverage with level premiums to age 90, 95, 100, or older.
Affordable rates are one thing, but you also want a life insurance company with a great track record. At Term Life Advice, we only work with reputable companies that have never failed to pay a valid claim. In fact, all of the companies we represent are “A” rated by AM Best for their financial stability.
Give us a call today, no matter your need for life insurance, we can help. Toll-free: 855-902-6494 or you can request a free instant life insurance online quote below to compare rates from dozens of companies in less than a minute.