Laddering Term Life Insurance Policies -Calculate and Customize

Published: January 23, 2014 at 2:49 pm

Last Updated on December 18, 2021 at 10:38 pm

I understand the need for life insuranceand I understand that it is best to buy a term life insurance policy.  However, how much should I be insured for?  When should I buy such policies? How many policies should I buy?

I am sure you would agree that these are common enough questions … among those who agree that a term policy is not a waste of money!

Let us discuss answers to these questions, which will lead us to an interesting idea: Laddering Term Life Insurance Policies

1. How much should I be insured for?

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Thumb rules suck. So let us try commonsense instead.

If I die today,

  • My family should be able to meet day-to-day expenses. Perhaps until my spouse dies or until my children get a job to support her
  • My children’s education must be accounted for
  • Their wedding too perhaps

So my insured sum should account for: day-to-day expenses and long term goals.

2. When should I buy it?

The answer seems obvious, but it is not so.

It seems obvious because most of us learn about the importance of a term policy and take it after we are married and when we have children. In such cases, the answer is obvious: immediately!

What if a 25 year old unmarried guy with independent parents wants to know the answer?

Would you tell him to buy it after he is married?  Or should he wait until he has children?

I would tell him to buy it immediately if he plans to get married for as large a sum as he can afford. Why? Read on!

3. For how long?

Again, the answer seems obvious but it is not so.

Typically, those who learn about term policies after marriage and kids, should take a term plan until normal retirement, say 60.

Why? Because their liquid net worth is unlikely to exceed the value ofpolicy before they retire.

Why? Well, typically such folks haven’t invested enough and/or invested right. So they need time.

What about our 25 year old? How long should the duration of his term policy be?

If he has his priorities right, about 20 -25 years, until about age 50.

If does not invest enough, invest right, systematically, he is better off with a policy until typical retirement age.

  • The cost of a term policy depends not only on the age and profile of the applicant.  It also depends on the tenure.  So short termed policies, taken early are lowest in terms of price and highest in terms of prudence.
  • The idea is simple: take a short term plan, early; increase net worth systematically; When net worth exceed the value of the policy, get rid of the policy and use the premium amount for further increasing net worth!
  • How is increasing net worth related to a term policy?  Read on to find out!

4. How many policies should I buy? 

I am not referring to the idea of ‘splitting’ the term cover into 2/3 so thatrisk of claim rejection is reduced.  I fail to see anything smart about that.

Let us get back to question 1: How much should I be insured for?

A term policy should account for day-to-day expenses and long-term goals.

Day-to-day expenses could range from forever to a couple of decades.  That is, until the spouse lives or until the children start to earn.

The duration of other long-term goals can vary quite a bit.  For example,

a)     My two children are aged 4 and 2.  They will graduate from school in 13 and 15 years respectively.  So I need money for their college education after 13 years. Let us ignore the two year difference. Assuming I would like them to marry at age 25, I need money for marriage only after 21 years.

b)     On the other hand, if my children are aged 10 and 2, I will need money for the first children college fee after 7 years and marriage after 15 years. For the second child, college fee after 15 years and marriage after 23 years.

Laddering Term Life Insurance Policies
Photo Credit: Wonderlane (Flickr)

I can go about buying polices in three ways:

1. Buy a single policy that covers monthly expenses for the family, school fee and college fee for children and their marriage expenses.

2. Ladder the policies

If my the age difference between my children is small, I could

  • buy one policy to cover expenses (inflation-indexed) for, say 25 years
  • buy a second policy to cover school and college expenses for children, say for 10 years
  • buy a third policy to cover marriage expenses, say for 15 years

Buying term policies with different durations that correspond to major long term goals is known as laddering.

 Even if the total premium for the 3 policies is more than that for a single policy (not always true. Could well be the other way), laddering them, frees up cash.

Once the policy that covers education has expired, it frees up cash that can be invested or utilized.  The same applies to the policy that covers marriage.

If we have just one policy, we would need to keep it active until our net worth is comparable to the policy value.

Laddering can be done in many ways.  For example, if the age difference between my children is large I could

  • have one policy for expenses
  • a second policy for the first child’s education and marriage and
  • a third policy for the second child’s education and marriage.

It all depends on the individuals priorities.

Advantages of laddering term insurance policies

  • Best suited, if one invests enough for all major long-term goals in a disciplined manner.
  • Frees up cash after each major long term goals.  Meaningless if not utilized right.
  • Possibility of lowering total premium.

Disadvantages of laddering term insurance policies

  • If one does not invest enough for major long-term goals, in particular retirement, and dies after a couple of decades with only one policy from the ladder in force, the resulting payout will not be enough for covering expenses.  A single policy would fare better in this case.
  • Certainly not a simple option.  Best to take all policies from the same insurer. If the applicant dies soon after inception, the nominee will have to process all the claims.
  • If there is loading involved, laddering may not turn out cheaper.
  • Multiple due dates for paying premiums!

Note: After buying a term policy, one or several, it is crucial to invest for long term goals systematically in a disciplined manner.  Otherwise, a term plan is pointless.

While calculating the value of the insurance policy, it is assumed that death occurs immediately (well, within a few years!).

That is current expenses are used to calculate the sum required to create an income (inflation-indexed or otherwise). Ifdeath occurs after say, 20 years, the value of the policy will not be enough to cover expenses at that time. There could be a significant shortfall.

Therefore, it is crucial to invest enough for long-term goals so that the value of investments at the time of death minimises the shortfall.

Getting back to our 25-year old, why should be buy a policy for as large a value as possible? Why can’t he get one for covering expenses now, wait until he get a child and then get another for its education and marriage?

Could work that way, but delaying the purchase of a term plan also enhances the chance that it would get loaded due to changes in lifestyle or job profile.

So best to get as much as possible when young if the person wants to marry and start a family.

Laddering works best when all the policies are purchased at the same time.

Term Life Insurance Ladder Calculator

I have modified the comprehensive child planner to include insurance laddering options.

Other features:

1. the insurance amount need to secure college and marriage expenses of two children

2. the amount need to save for college and marriage expenses

3. insurance amount need to provide inflation adjusted monthly expenses for the family and school expenses for two children

It provides the break-up of the insurance amount needed for above goals with a generic action plan.

With this information, you can create your own insurance ladder.

 Download Term Life Insurance Ladder Calculator


  • Discussions with Kirti from Bemoneyaware on ‘the right age to buy life insurance’
  • Comment on laddering strategy by Sanjeev Bhatia in Subra’s post.

 Your Say: What do you think? Do you think laddering is a smart idea?

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)