Step Up Your Family's Protection
~Laddering life insurance helps families to reach their financial
Laddering your life insurance can be a very effective method of providing
financial protection for your family while allowing for the changes, over time,
in your lifestyle, family responsibilities and financial position. Many young
families have high death benefit needs early on that will decrease over time.
As a family's death benefit needs decline outstanding mortgage liabilities
become smaller, children finish college and move out of the house (you hope!) – and
life insurance coverage can be designed to reflect these changes.
Laddering your life insurance coverage can be accomplished
effectively using different types of policies. To provide adequate
protection during times of high death benefit needs and also
maintain adequate coverage for the rest of your life, start off
with as much permanent whole life insurance as you can afford,
supplemented by the necessary amount of term insurance to meet
the total death benefit needed. Term life insurance can be the
most cost-effective form of insurance to give your family protection
for a finite period of time while permanent or whole life insurance
provides a savings vehicle that could be used in the future to
pay tuitions or to supplement retirement funds.
Consider this hypothetical example of a laddered life insurance
program. Assume Mr. and Mrs. Izzo are a dual-income family with
a three-year-old son and a $700,000 30-year mortgage. Both Mr.
and Mrs. Izzo like the idea of having permanent whole life insurance
because of the lifetime protection, cash accumulation features
and tax-deferral benefits but can not afford the premiums to
purchase the $1,250,000 of whole life coverage that they have
decided that they each need. To meet their short-term protection
needs and also put in place the benefits that permanent whole
life insurance coverage has to offer, the Izzos each insure themselves
with $250,000 of permanent whole life insurance and supplement
that with $1 million each of 20-year term life insurance.
After six years the Izzos have another child and need coverage
in place for a longer period than the remaining 14 years of their
term policy. They each decide to purchase a $500,000 universal
life insurance policy. The universal life policy – basically
a term life insurance product with an accumulation or savings
component – is very flexible and will allow them to determine
how long they need to maintain the coverage.
The term insurance coverage expires at the end of the 20-year
term, but since the Izzos' liabilities have decreased, they still
have the necessary protection they need with the permanent whole
life and universal life policies. As the Izzos' children mature
into responsible adults and their retirement planning and other
financial goals are achieved they can relinquish the universal
life policies knowing that the permanent whole life policies
that they each purchased many years ago will help them to offset
estate taxes and leave a legacy to their children.
Laddering your life insurance coverage can help provide the
protection you need for your family while providing you with
the financial flexibility you want to help meet your financial
and personal goals.
Kelby Gelston is an associate of FranklinMorris,
Coordinating Broker for the Bar Associations Insurance Agency,
Inc. For more information on the insurance benefits available
to MSBA members, visit www.msba.org/departments/membership/baia/franklinmorris.pdf.