Term Insurance Laddering Strategy

The problem with term insurance

2016-06-18_1627Term insurance is a great way to get your life insurance at a low cost, because it is much cheaper than Whole life or permanent insurance.

The problem however is that, once the term is up, and the renewal notice comes in the mail, the sharp increase in rates causes many people to freak out, because the increase can be 4-5 time the price that you have been paying before!

Sure, if you are still in good health, you could re-apply with a new medical, and get a better price, but what if your health isn’t perfect any more, and you can’t get a policy 10 or 20 years down the road?

There may be a better way…

Rather than waiting 10 or 20 years for the term to renew, one other strategy is to change up your term yourself every 2-3 years. This way, the increases in your price are much smaller, and in some cases almost non-existent.


This way, you can push out that BIG renewal price way into the future, and keep your insurance cost manageable for a much longer time.

What also helps in this strategy is the recent introduction of the “exchange privilege” that a lot of insurers have added to their 10 year term policies. What that means is that even if you start with the shortest and cheapest term possible, which is a T10, these insurance companies will allow you to exchange your T10 policy to a T20 policy or even a longer term, as long as you do it before the 5th policy year.

So where that helps you is that if for some unfortunate reason you cannot pass a medical later in the future, because of an illness, the insurer still has to give you a longer term policy, at the same rate as when you were healthy.

This absolutely takes the risk out of doing this strategy.


What if I just wait for the end of the term?

There is nothing wrong with that, you have your initial price guaranteed for the whole length of your term, but….let me tell you the story of John Hutchinson.

John was 60 years old when he took a 10 year term, and it was at a price that he could afford easily. When he turned 68, he was diagnosed with diabetes, and started to take daily insulin shots. When he turned 70 , and his T10 policy renewed, his guaranteed renewal price went from 128 per month to 579 per month which he would have to pay, if he wanted to continue the policy.

Unfortunately, there was no way that John could afford that monthly premium, and because at this point , he was no longer insurable, he couldn’t apply for a new policy.

John Hutchinson had to live the rest of his life without any life insurance.

 What John Hutchinson could have done…

If John Hutchinson had done the “term life insurance ladder strategy”, he could have reset his term every 2 years for the first 8 years, and his premium would have gone up by aprox 10-15% every time, which would have been very manageable for John,. His last reset would have happened at age 68, which would have then been the last time to reset, and his insurance would have lasted a lot longer.

For those of you that are considering buying permanent life insurance because you are afraid of term insurance increases, this would be something to consider instead. I would be happy to explain this to you if you have any questions, please contact me.


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