When you’re raising a family, you want to be smart with your money – not spending more than you have to on the things you need. One of those essentials is life insurance, which you need to protect your loved ones.
Here’s a way to get the protection you need, for less. It’s an approach we call “layering.”
Why the traditional way may not be best
The usual way of purchasing life insurance is to determine how much coverage you need, how many years you need it for, then get one product, one solution. For example, you might purchase a $400,000 policy with coverage for 20 years.
The drawback is that insurance needs typically decrease over the years. As a result, you can end up paying for coverage that you don’t need.
How insurance needs can decrease over time
You need life insurance to protect your family. Should something happen to you, the insurance benefit will help cover all the things your annual salary pays for. But after 10 years have gone by, that’s 10 fewer years you need to pay for.
The same is true for your mortgage. Over time, your mortgage balance diminishes and you don’t need as much insurance. Education costs are another example. You need life insurance to cover education costs, but the amount of coverage needed goes down as you build up education savings.
If your insurance needs decrease over the years, why should your insurance coverage and costs stay the same?
How layering works
The layering method matches the amount of life insurance coverage to your decreasing insurance needs throughout your life. It works by using two or more coverages of different durations – 10 years, 20 years, 30 years or lifetime coverage. They begin together, layered one on top of the other, and as the years go by, some coverage ends. You spend less for life insurance over time because the amount of coverage you pay for decreases as your needs decrease.
Here’s an example to show how it works.
The layering method in action
Samuel and Camille, both 35, have two children – Jeanette is 5 and Leah is 2. Let’s look at their insurance needs. If Samuel passes away unexpectedly, funds would be needed to replace his annual income, cover the mortgage, pay outstanding debts and ensure his kids can get the education they want.
Samuel and Camille meet with their advisor and determine that $500,000 of life insurance would provide the family with financial security.
Now let’s look 10 years into the future. The mortgage balance is lower, the RESP is significantly larger and fewer years remain to support the children to adulthood. The amount of insurance they need has decreased substantially.
Now look forward another 10 years. Jeanette is 25, Leah is 22, and the only remaining insurance need is to cover the cost of a funeral and final expenses.
The following table shows how a layered solution can help Samuel protect his family for less.
Samuel’s layered solution
A layered solution gives Samuel $500,000 coverage for 10 years and reduces coverage as his insurance needs change.
Is a layered solution right for you?
We’d welcome the opportunity of meeting with you to discuss your family’s unique insurance needs and determine if a layered approach is right for you. Contact us at email@example.com or 416-882-5606.