Layering Term Life Insurance

If you are like most Americans, you have a need for life insurance that decreases as you get older. Over time, your assets grow and your liabilities decrease.  It may be beneficial to look at the expenses you’d want paid for if something happened to you.  Most of these expenses are temporary, such as paying off a mortgage, paying college expenses for children, or replacing your lost income for your surviving spouse.

Perhaps your situation is similar to the one mentioned above. Most life insurance agents will total the cost of your remaining mortgage, college expenses and replacement of income.  They will use this total and suggest that you purchase a term policy for the dollar amount they have totaled.  Sometimes, the cost of this can be prohibitive.

It may be beneficial to look at each situation individually and calculate the amount of money you would need and then the time period for which you’d need it. For example, if you have a 30 year mortgage that is $250,000 consider a 30 year term for that dollar amount.  If your kids will be done with college in 10 years and you calculate the cost of that to be $100,000, purchase a 20 year term policy for that dollar amount.  If you feel that you could comfortably retire in 20 years and your spouse would no longer need income after that time, purchase a 20 year term to cover your loss of income until your retirement age.

If you structure your policies in this manner, you stagger their expiration dates around major life events so that the amount of insurance you carry gradually decreases over time. This also means the cost of insurance is lower for you.  The other benefit to doing this is that if your financial situation changes, a term policy is relatively easy to cancel and typically does not have any type of penalty fee for doing so.

Think about the events in your life you’d like protected if something happened to you. Would you want your mortgage paid for so that your spouse didn’t have to worry about that cost?  Would you want your kids to be able to attend college?  Would you want to provide your spouse an income to replace your lost income?  Then, take a look at the time frames for each event and the amount of money you’d want to be set aside for your family for these things.