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Mid-Career Insurance

There’s a saying when it comes to life insurance:  “What would you like your life insurance to do for you?”  It replaces income, can pay for long term care expenses, and can supplement your retirement income, among other things.

Life insurance is a part of your overall financial planning and your needs may change as you enter your mid-career years.

The question to ask in mid-career is:  has your life outpaced your insurance coverage?

You may be surprised how much life insurance it takes to cover your current interests, which may have grown in the last 10-20 years since you entered the workforce.  That’s why career building and insurance planning should be considered in tandem.


Take a typical dual income household.  Let’s say each spouse earns $70,000 per year.  Assuming 20% for income taxes, that leaves $70,000 x 80% = $56,000 in annual income or $4,667 in monthly income per spouse.  The combined monthly household budget may be double that, around $9,300.

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How much life insurance would it take to replace either spouse’s income?

Each spouse may use life insurance to replace the lost income of the other spouse as a way to manage the financial risk of a spouse dying.  That would help ensure the surviving spouse would have the income to continue to pay for medical insurance, college savings, car payments, mortgage payments, utilities, etc.

To generate $4,667 to replace a deceased spouse’s income the surviving spouse would need a reliable annual rate of return–because that money must be available when the bills are due.  Let’s say 5%.  Each spouse may, therefore, need $1,400,000 in life insurance coverage.

How did I get that number?

If the surviving spouse invested the (tax-free) death benefit of $1,400,000 at a 5% rate of return, it would generate $70,000 of taxable income.  After subtracting 20% for income taxes, that leaves $56,000 annually or $4,667 per month, the amount to replace the deceased spouse’s income.  That income may be generated for the duration of the surviving spouse’s life.

There is no way to replace an individual but we can manage the financial risk related to losing that individual so the surviving family has the means to continue to pursue life’s needs and dreams.  That takes some financial planning.

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Life Insurance Multitasks–Just Like You

If you think of life insurance as just a death benefit, think again.  It’s true that term insurance is simple, has a premium and a death benefit, and not much else.  But permanent life insurance can be designed to do a lot more.  It can multitask, just like you do.

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Pay Long Term Care Expenses

If you’ve ever helped to care for an elderly relative or helped to arrange for a home health aide for that relative, you may have at some point added up the cost of that aide.  It’s a major sacrifice of money and/or time.  It’s estimated that 70% of Americans will need to pay for such care at some point in their life.  That’s a probability that you will need this type of care.  You should plan for probabilities.

Did you know there are different strategies to use a life insurance policy to pay for these kinds of expenses?

  • Some strategies use the cash value in the policy to pay for long term care expenses
  • Some policy features allow you to use the death benefit to pay for long term care expenses

Either strategy is designed to use the life insurance policy during your life.  Unlike standalone long term care insurance policies, a life insurance policy with a long term component is not a “use-it-or-lose-it” policy.  There’s a benefit for the insured or a benefit for the beneficiary or for both.

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Tax-Free Retirement Income

In the same way one may use the accumulated cash value in a life insurance policy to pay for long term care expenses, there are no restrictions on the use of policy cash value.  It can be used to supplement retirement income–as an additional layer of income stacked on top of Social Security–and if taken as a loan (not a withdrawal from the policy), the income is tax-free.

Using life insurance for tax-free retirement income, called a life insurance retirement plan or LIRP, is one thoughtful way to help insulate your income needs against the risk of higher income tax rates.

Note:  Using a policy’s cash value for outside-the-policy needs, such as for retirement income, can be a viable financial strategy but it needs to be pursued with care.

A policy’s cash value is primarily designed to sustain the policy’s death benefit–the primary purpose of a life insurance policy.  Unless the policy is designed for outside cash use, draining a policy of cash value may lead to the policy lapsing prior to the insured’s death which may trigger a taxable event for the owner of that policy.


  • Life insurance helps manage the financial risk to a household
  • Life insurance can be used to pay for long term care expenses
  • Life insurance can be used to supplement retirement income

What do you want your life insurance to do for you?

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