UPDATED: Mar 26, 2020
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We’re going Throw Back Thursday with this one. Remember the movie Shrek? I mean the first one, you know, the original?
Well, there was a scene in the movie in which Shrek tries to explain to Donkey how ogres are a complex creature. It goes something like this:
SHREK – For your information, there’s a lot more to ogres than people think
DONKEY – Example?
SHREK – Example? Okay, um, ogres are like onions.
DONKEY – They stink?
SHREK – Yes — No!
DONKEY – They make you cry?
SHREK – No!
DONKEY – You leave them in the sun, they get all brown, start sproutin’ little white hairs?
SHREK – No! Layers! Onions have layers. Ogres have layers! Onions have layers. You get it? We both have layers.
DONKEY – Oh, you both have layers. Oh. You know, not everybody likes onions. Cake! Everybody loves cakes! Cakes have layers.
SHREK – I don’t care… what everyone likes. Ogres are not like cakes.
DONKEY – You know what else everybody likes? Parfaits. Have you ever met a person, you say, “Let’s get some parfait,” they say, “Hell no, I don’t like no parfait”? Parfaits are delicious.
SHREK – No! You dense, irritating, miniature beast of burden! Ogres are like onions! End of story. Bye-bye. See ya later.
DONKEY – Parfaits may be the most delicious thing on the whole damn planet.
SHREK – You know, I think I preferred your humming.
Maybe it’s just me, but I think that scene is hilarious. Thankfully, animated movie studios have figured out that by sprinkling adult humor throughout children’s movies, they make them more tolerable to parents. And that means more money to them, of course.
Regardless, seeing this movie recently got me thinking about layers. And being the geek I am, I couldn’t help but think how it applies to term life insurance.
Life Insurance Has Layers, Too
Term life insurance is one of the most affordable ways to protect your family, business or estate. The good and the bad of term life is its fixed length of time or the policy term length. Sometimes owning one policy doesn’t always provide the flexibility to meet your needs. That’s where layering comes in.
Policy layering is simply a technique where term policies of different lengths are put in place to cover a variety of needs.
Customizing the protection in this manner allows you to carry higher amounts of coverage when it’s needed and lower amounts when your needs change. The primary advantage to this is you won’t pay for coverage you don’t need. In other words, you save money.
How Layering Life Insurance Saves You Money
Let’s say you are a 29-year-old woman and you’re married with two young children.
The kiddos are 3 and 5 years old (and adorable, of course). It will cost you about $125,000 each to put them through college, not including graduate or post-graduate school.
You have a mortgage on your home with a balance of $250,000 and 27 years remaining on the note.
You have a great career as a young professional with an annual salary of $75,000.
You could take out one term life insurance policy to cover all of your obligations. If you did, it would look something like this:
Coverage amount – $1,250,000
- $750,000 for income replacement (10 x $75,000)
- $250,000 for mortgage repayment
- $250,000 for college funding
Policy term – 30 years
- Long enough to cover the outstanding mortgage
Policy cost – $885.00 annually
- $26,550 total over the 30-year term
Or you could layer two policies together to provide the right amount of protection at the right time, like this:
- $1,000,000 / 20 years / $445.00 annually
- Covers income replacement and college funding
- $250,000 / 30 years / $235.00 annually
- Covers the mortgage balance
The combined cost of these two smaller policies is $680 per year, compared with $885 per year for one large policy. By layering policies in this manner, you would save $205 each year for 20 years. Then, in years 21-30 you would only pay for Policy #2, which is $235 per year.
We did the math. That’s a grand total savings to you of $10,600 over 30 years by purchasing two smaller policies.
Much like our onery, animated ogre, life insurance can be a complicated beast. But taking the time to peel back the layers will often reveal something good and useful inside.
Sources: Rates assume a Preferred rating class and are for illustration only. Rates and info provided by Mutual of Omaha and Banner Life.