Layering. Stacking. Staggering. Whatever you call it, it can save your clients money. While the most common time periods for term life insurance are 20- and 30-year term, that's not always the best solution. For most of us, our need for life insurance will change as we age; just like our lives change. We’ll gain assets and pay down or pay off liabilities and debt. Which means our need for life insurance may also decrease.

Real-world example of term layering

One advisor recently asked us to help her 35-year-old physician client (whom we’ll call “Doc”). Doc is a urologist, married, and has two kids (ages 1 and 3). She has a large amount of student loan debt from medical school. And she values their exotic biannual vacations (Malaga, Spain, Costa Rica, Morocco). She and her advisor had calculated she needed $3 million in term life insurance and had set a retirement/financial independence goal at age 65. Doc was in good health, so we determined in our pre-underwriting that she would qualify for the Preferred rate class.

We gave Doc and her advisor these two options:

1. A 30-year level term $3 million policy: $2,310 per year premium for 30 years.
   This is simple and straightforward, but often not the most cost-effective option for your clients. If Doc and her husband were not good savers and/or needed to cut back on spending (but not good at the doing without mentality), this may have been in their best interest. But since neither of those describes them, we included this:
2. 15-year level term $1,000,000 policy to insure the kids’ high school/driving years: $340 per year premium for 15 years.
   
   20-year level term $1,000,000 policy to insure the kids’ college expenses and her own student loan debt: $424 per year premium for 20 years.
   
   30-year level term $1,000,000 policy to insure income replacement for her husband and kids and get her to retirement age and financial independence: $810 per year premium for 30 years.
   
   Each year that passes she’s earning more income that covers their day-to-day expenses, mortgage payments, and paying down debt. They’re putting money aside for the kids’ college. She’s contributing to her 401k (and her employer matches). And each year, she’s getting closer to the financial planning goals she and her advisor have designed. Her need for the life insurance is going down and there are fewer years of potential income she needs to replace.

As each term policy drops, so do her premiums, but she still has the appropriate amount of coverage that suits her lifestyle and her family needs at each term period.

The three layered policies we recommended were with the same insurance company. This provided Doc with bundled rates (similar to buying a 24-pack of soda from Sam’s Club versus a 12-pack from Publix and another 12-pack from Kroger). And she needed just one paramedical exam that was used for all three policies. It is possible, however, to get the layered policies from different insurance companies if those options work best for a client.

Your clients can also layer four term policies, depending on their individual circumstances and needs. And most insurance companies offer terms of 10, 15, 20, 25, and 30 years.

Can layering be the right solution for your clients? Here are some questions to ask them before calling LLIS (or we will ask them for you!):

• Do you have children? If yes, what are their ages?
• Do you plan to have more kids?
• What is your occupation?
• What is your current salary? Anticipated salary increases as you progress?
• If married, does your spouse work? Current salary? Anticipated salary increases?

Another benefit to term layering is flexibility. If Doc’s financial situation changes in a few years, and she no longer needs the same amount of coverage, she can cancel one of her policies without any fees or penalties. Unlike other types of insurance, canceling a term insurance policy is relatively easy; you can either stop making payments on that specific policy, or cancel your coverage in writing. In addition to the money saved, this flexibility provides Doc with two intangible – yet valuable - byproducts: peace of mind and money. Doc plans to put her savings toward their biannual vacations (which is good because they now have two children to take along).