“Laddering” life insurance policies lets you strategically decrease your coverage over time, ensuring you only pay for the coverage you need as your circumstances change.
As you reach major milestones in life, the amount of life insurance you need — and how much it costs — is going to change. We all become more expensive to insure as we age, so applying for a new policy later in life usually means paying more money for less coverage. At the same time, paying off a mortgage and settling other debts and financial obligations often means you don’t need as much coverage.
By laddering multiple life insurance with different coverage amounts and term lengths early on, you can provide your loved ones with the right financial safety net while locking in the most competitive rates.
Buying multiple term life insurance policies that expire at different times is called the ladder strategy.
If implemented properly, you can save thousands of dollars in premiums by laddering life insurance policies.
You should only ladder life insurance policies if you have a clear understanding of what your financial future looks like.
What is the ladder strategy?
To ladder life insurance means taking out multiple insurance policies with different coverage amounts and term lengths. You can intentionally stack these policies so you have the right amount of financial protection across different stages of your life.
The ladder approach applies only to term life insurance, which is the most popular type of life insurance because it's affordable, comes with few tax restrictions or limitations, and lasts only for the time you need it.
You can have multiple permanent life insurance policies, too. But since these don’t expire, you can’t really ladder them, defeating the purpose of saving money using the laddering approach.
How to ladder your life insurance
At first, you may need a larger death benefit to cover multiple facets of your life, from caring for your children to ensuring your student loan debts don’t fall on loved ones.
But as time goes on and your children grow up or your debts are paid off, you may only need enough coverage to cover a few outstanding expenses, like a mortgage or final medical bills.
The ladder strategy is designed according to this principle:
As you get older, pay down bills, and increase your savings, your financial obligations decrease and you don't need as much life insurance.
You ladder multiple life insurance policies so that they expire at different times.
This ensures that you’re only paying for the protection you actually need and not the coverage you needed 10 or 20 years ago.
→ Read more about how life insurance works
How to save money with a life insurance ladder strategy
Life insurance policies are priced according to a few major variables:
How long the policy lasts: A 20-year term policy costs more than a 10-year term policy.
How much coverage you want: A policy with a $750,000 coverage amount costs hundreds more than one with a $500,000 coverage amount over its lifetime.
Your background: A person with a complicated health history will have a more expensive policy than someone without any health conditions, while younger applicants pay less than older applicants.
The ladder approach takes advantage of the first two variables by tapering off certain coverages when they’re no longer needed. Finally, it also takes advantage of the third variable by locking in low rates for each life insurance policy when you’re young and healthy.
→ Read more about how long your life insurance coverage should last
The life insurance ladder strategy in action
If you need $1 million in life insurance over your lifetime, that doesn’t mean you need $1 million in coverage at every point in your life. Your expenses are higher when you’re younger and have more financial responsibilities. As you get older and pay off some initial financial obligations, like a mortgage or your children’s college tuition, your coverage needs are likely to be lower.
By laddering three separate term policies that equate to $1 million now and allowing them to taper off over time, you’re only paying the premiums when you actually need the coverage.
Here’s how it would work if you were a 35-year-old male based on these three policies:
Policy 1: A 10-year policy of $500,000
Policy 2: A 20-year policy of $300,000
Policy 3: A 30-year policy of $200,000
You have a total of $1 million in life insurance now, and as you get older and need less protection, your coverage amount decreases. The example below illustrates what that means for your finances — and how much you’d end up saving. Even when you have all three original policies in force simultaneously, the monthly cost of all three premiums combined is cheaper than the single monthly premium you’d have to pay for a $1 million policy with the same duration.
Laddered life insurance vs. a 30-year-term life policy
Below is an example of the difference in premiums between laddered policies and one 30-year term policy with the same total coverage amount.
Laddered life insurance monthly payments for $1 million total coverage
$500,000 policy for 10 years
$300,000 policy for 20 years
$200,000 policy for 30 years
30-year term life insurance monthly payments for $1 million total coverage
$1,000,000 policy for 30 years
How much can you save with a life insurance ladder strategy?
As the illustrated example shows, the ladder strategy can save you over 50% on your term life insurance by staggering multiple policies rather than buying one large policy.
This doesn't mean that everyone will save 50% with a ladder strategy — your premiums will vary depending on age, gender, insurer, health, hobbies, and other factors that make up your unique profile. But as you can see from the example above, building a ladder strategy is a very effective way to lower the cost of your life insurance over time if you need a lot of coverage now, but won’t necessarily need it later.
Should I use the life insurance ladder approach?
Laddering life insurance is a good financial strategy if you know what your future expenses entail — from mortgages to how many children you’ll need to provide for. By laddering life insurance policies, you can save a lot of money in the long run — if you get a term policy to cover dependent care now and buy a policy with just enough protection to cover small expenses later on, even that smaller amount of coverage will be a lot costlier.
"Financial obligations and situations as a whole can, and often do, change over time. The goal is that over time your assets will increase and debts will decrease,” says Patrick Hanzel, advanced planning manager and certified financial planner at Policygenius. “Laddering is a good solution when there is a clear timeline for these changes. It will both save you premiums and provide the proper amount of coverage when it is needed.”
If, on the other hand, you’re unsure of what your finances are going to look like in the future, getting multiple life insurance policies isn’t a cost-effective financial strategy.
Laddering your life insurance has the potential to save you a lot of money if you can anticipate what your financial future will look like for the next 20 to 30 years. A Policygenius expert can help you evaluate how much life insurance you need, design your ladder strategy, or apply for one single life insurance policy to get you and your loved ones enough coverage.
Review how much life insurance you need
The amount of life insurance you need will depend on several factors, including if you have a spouse and whether or not they work, if you have dependents or plan to have children one day, and if you have any major liabilities (for example, a mortgage or student loans).
Most financial advisors typically recommend anywhere between 10 to 15 times your annual income in coverage. Another method is to apply for coverage that costs about 1% of your annual income, so you can feel confident you’ll be able to maintain the policy. It’s important to consult an insurance or financial professional about your specific situation to get some guidance on what will work best for you.
→ Learn more about what happens if you outlive your life insurance
Revisit your life insurance coverage needs over time
Typically, it’s a good idea to review your life insurance coverage at major life milestones such as getting married, having a child, buying a house, or even switching jobs. This way you can ensure that you don't have too much or too little life insurance coverage for your financial protection needs.
How to pick the right life insurance ladder strategy for you
Each policy comes with administrative fees, so stacking more than two or three policies can become more expensive and cumbersome in the long run. Working with a financial advisor can ensure that you set up a life insurance ladder plan that saves you money and provides the coverage you need at different stages of your life.
Once you know the number of policies, term lengths, and coverage amounts you need, the best way to get the best pricing and most accurate information available across multiple insurers is to work with an independent broker.
On the other hand, if you’re not sure if laddering life insurance is right for you, an independent broker can help you assess your needs. At Policygenius, our brokers are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice tailored to your personal situation.
Frequently asked questions
What is a life insurance ladder?
Laddering life insurance is a strategy that involves setting up multiple policies with different term lengths and coverage amounts to suit your needs as they evolve over time.
Can you ladder life insurance?
Yes. You can ladder life insurance — or stack multiple term life insurance policies — to make sure you have the right amount of coverage at each stage of your life. Whole or permanent life insurance policies cannot be stacked because they don’t expire.
How do you ladder life insurance policies?
You buy multiple term life insurance policies with different coverage amounts and term lengths. Ideally, as you grow older, some of the policies expire so you're only left with the coverage you need.