Term life how to structure, ladder or not?

[bmillerware]

We are trying to decide how to structure our term life policies, any suggestion would be appreciated.

38 M and 37 F, with a 6 months old and 3 year old kids. We will be buying a new house around 800k sometime soon. We make 250k each.

I think we need 3M in total coverage, 1M for mortgage hopefully it will be paid in 15yr but who knows could take 30 too..., around 2M for the kids until they get to 25 yrs old.

For wife the quote is around $160 a month for 3M 30yr, for me its going to cost around $500 a month for 3M 30 yr.

How would you structure the policies for a realistic and reasonable costs?

I am thinking leaving 3M 30 yr for wife, but laddering mine to 1M 15yr and 1M 20yr and 1M 30yr, but feels like its bit unfair that we both don't have same coverages for each other.

Please suggest, thanks.

 

[bmillerware]

@structure Got high cholesterol under control with meds for 2 yrs and recent pre-diabetes diagnosis was told to diet and exercise. I was quoted for standard table 2.

 

[structure]

@bmillerware Cholesterol with Meds isn’t a big issue. High BMi and Diabetes are, but can be controlled.

If you were my client I would give you two options:
1. Do you see yourself getting healthier in the next 2-5 years? If yes. Get a 10 year 3 million term. If you lose the weight and get control of your diabetes. Re-apply and lock down a longer term
2. If you honestly don’t see yourself getting healthier, then lock down as much as you can afford right now.

 

[easternpresent]

@structure Why is the advice not to just buy longest term now…

Get healthy…

Then reapply for lower rates.

No offense to OP but so many people who swear they will lose the weight, quit smoking, or start cardio, do not do these things. And then they either have to convert or pay even higher prices when their term ends.

 

[structure]

@easternpresent The difference in rate between age 38 and 40 is not that great. The difference in rate between a 10 year term term and a 30 year term is pretty drastic. If your goal is to lose the weight and get re-rated jn a few years, why pay for the 30 year term? Thats thousands of dollars of premium over a few years of extra premium you are paying for the same 3 million.

 

[easternpresent]

@structure My thought is because of the risk.

“It’s not a story of numbers but the number of stories”

Just as the client can improve their health. It can also decline. We always advise to lock in the rate and then at policy anniversary submit a rate reduction application.

 

[structure]

@easternpresent I would agree with you if this was an older client or someone with a family history of those same risks. In this situation, with weight being the main driver of the high rates, its something that can be worked on. Like I said in my original reply, I give my clients options and let them decide. Yes, there’s always a possibility of health worsening and that’s the risk and this is only something I would recommend in certain situations.

Additionally, his table 2 rate might be a non smoker plus rate with another carrier as is right now. So that’s something additional he can explore with his Agent.

 

[easternpresent]

@structure You’re a good broker. I see your logic.

Thanks for talking this out with me. It’s very obvious in your discourse that you care for your clients and advise them well.

Hope you had a great year.

 

[firebynight]

@bmillerware Why ladder when most companies allow decrease in face amount? You'll cost yourself more money in the long run by laddering based on what you said. Decreasing the coverage will also decrease the price. Just go with a company that allows Face decreases down the road.

 

[bmillerware]

@firebynight When decreasing the face value is the reduction in premium proportional , like would it cost the same as buying a lesser policy now? Or since u are locked in insurance company will charge u more than lower policy right now?

 

[faithfulxlove]

@bmillerware It would be better to check with your agent, but generally it’s not exactly proportional. Most term policies have premium bands where the carrier shares in more of the fixed cost of writing the policy for larger face amounts. So if you’re reducing the face amount from above the lowest band, the reduction in premium would be smaller than proportional since you’re cancelling the least expensive portion of the coverage.

Since the policy has fixed costs that are being passed to you, then only buying one would prevent the duplication of fixed costs, which is what I believe the first commenter was getting at. However, when you reduce the amount, it does not pay you back for the additional premiums you already paid for the option to keep the full death benefit for the full term. The first 10 years of a 30 year term is more expensive than the first 10 years of a 20 year term and so on. So I’m not sure it would actually be cheaper to only buy one policy.

https://www.quickquote.com/life-insurance-rate-bands-can-save-you-money/#

Edit: clarity

 

[firebynight]

@bmillerware Typically... relatively speaking. BUT.... Banner life (legal and general) just launched a product I was trained on today. It's term with free riders that is essentially doing what you're trying to do. Its cheaper than laddering or buying 1 policy with face decreases. I would check them out. Great company and fantastic option for what you're trying to do!

 

[levnishbar]

@bmillerware You could do the ladder for your wife as well.

 

[bmillerware]

@levnishbar The price saving from doing so would be just $500 a year, is it worth breaking that down, given that she might have to pay much higher later if we need to buy more...

 

[bmillerware]

I guess the main question, i am trying to get to is, how to ladder for most beneficial outcome?

 

[levnishbar]

@bmillerware Yeah, just play around with the years and the numbers until it makes the most sense.

 

[peacewithin]

@bmillerware You could run a few different scenarios here.

You could ladder for a few of your objectives. At the end of the day what you should be most concerned about is your total coverage. At the end of the day and a worst case scenario your beneficiaries won’t ask which policy was for what purpose.

For your kids if you are strictly looking at making sure their is enough money their to cover the costs of raising your kids,then you could manually decrease their coverage over time as they get older. The costs of raising the kids is much higher when they are the youngest. As they get older they aren’t as dependent on you. IE. If you were to pass and have very young kids, your surviving spouse will most likely need to hire help as needed. As they get older you may not need a baby sitter or a driver. I would get a 20 year term and decrease it over time (although the cost on this policy is probably low enough that you just wouldn’t touch it )

You could do the same for the mortgage. Decrease it over time as you pay it off.

If you are just looking to leave a large sum of money to the surviving spouse/kids, then just get the 30 year and chalk it up as peace of mind.

Statistically speaking, most people change their insurance needs as time goes on. You make more money , have more kids, acquire more assets. You will most likely change your insurance multiple times. If you plan on actively changing your insurance needs then you way over pay for a 30 year term. But if you have health issues. Get as much as you can afford for as long as you want

 

[genebgto]

@bmillerware Do you have optional life from your employer? If yes and if it’s portable without underwriting then it is a good option until you are 50. The premiums generally shoot up in 50s.

So one idea is to use a combination of employer based voluntary life policy of 1 mn plus a 30 year 2 mn policy.

This means your coverage drops partially at some point but that is probably okay if you build wealth in the meantime.

 

[bethellens]

@bmillerware You can ask add to family rider to it or joint life rider.

 

[bmillerware]

@bethellens What is joint life rider ? Please help understand