Managing Your Wealth with Life Insurance through Life Stages

life insurance, financial planning,

Life insurance can be confusing. It’s a protection tool for your family, but can also be an investment tool. Your beneficiaries get the payout when you die, but you can draw funds from it while you’re still alive.

There are plenty of questions with strategies to match when it comes to this kind of policy.

Let’s look at three hypothetical scenarios that are common in financial planning and outline strategies you might use to optimize your investments and coverage.

What Young Families Should Consider

Mary and Mike are a young, reasonably successful couple in their late thirties with three kids and a fourth on the way soon. Between the two of them, they have $250,000 in student loans and a mortgage that’s about the same size.

Their income is strong, but their bills are strong, too, between student loan bills, mortgage, daycare costs, regular retirement savings (good for them!) and the general cost of living in a larger city.

Mary had a scare with their last child’s birth – complications that led to a two-week stay in the hospital and a substantial bill. Everyone is OK, but it got them thinking about how the family might survive without her income. The numbers didn’t look good.

After a heart-to-heart with their advisor, Mary and Mike decided to take out a $500,000 term insurance policy for both of them for 20 years. Why did they decide on term as a life insurance strategy?

Protect Income and Pay Off Debt

If one of them dies unexpectedly, their lifestyle speaks for most of the money they make. Losing an entire income would be devastating.

Expensive Time of Life

Several bills come every month, and they are right in the wealth-building years. Now is not the time to lose money.


Usually, life insurance is more expensive for men than women, because women tend to live longer and so have a longer collection period. Even then, Mike pays $30 a month for his policy, and Mary pays $25, adding up to $660 a year – a relatively small investment in exchange for feeling confident and protected, compared to the higher cost of a permanent policy.

Don’t Need the Investment Tool Right Now

They are struggling to meet their employers’ matches on their 401(k)s and haven’t started on their IRA journey. The extra expense of a permanent policy would go to better use in their traditional investments at the moment, although they’ve talked to their advisor about when that should change.

Mike and Mary decide on the term policy and open it up with their advisor. In doing so, they use a recommended formula for the death benefit: six to ten times the amount of their individual salaries.

What to Consider if You have Excess Cash Flow

John and Jane have just moved the last of their three kids into the dorm. They wipe their eyes and do the math on the way home – they will now spend $20,000 a year for the two in college, and the eldest is out and into the career world.

They also take some time to look over their financial life as it is now. They paid off the mortgage a while ago, but car payments, property insurance, kids’ college, retirement savings and a modest beach condo still make for substantial monthly bills. Medical deductibles have also become more expensive as both have gotten older.

Their term life insurance policy that they bought years ago to cover the family while the kids were at home is about to lapse. They looked into extending it into a permanent policy, but that company’s price wasn’t competitive.

John and Jane decide to meet with their financial advisor to discuss their next steps in this time of transition. After talking through their expenses and assets, their advisor recommends a variable universal life insurance policy as their life insurance strategy. Let’s look at why.

Permanent Life Insurance

Permanent life insurance features both a death benefit and cash value component, as opposed to term, which only offers the death benefit.

Cash Value Component

John and Jane have the capital within reach to overfund their policy and have the cash value of the policy accumulate according to their investment choices. Overfunding means that they paid the required premiums to keep the policy in place and added extra funds that go directly to the investments they have chosen.

Since they both have their contributions for their 401(k)s at work and their IRA contributions maxed out, life insurance gives them another investment stream through overfunding.


Jane is a bit of a DIY investor and has been able to deal wisely with other investments and with their mutual funds. She appreciates the control she has with a variable model and allocates funds toward ESG investments that they both believe in.

John and Jane’s advisor had a heart-to-heart with them about this approach to life insurance. The advisor pressed that a variable policy requires the policy-owner to monitor and maintain the investments housed in their policy just like they monitor the investments inside of their retirement plans.

Funds Available

The couple was able to overfund their policy for the next 10 years. John had a heart attack, underwent open-heart surgery and spent several weeks in the hospital and then at home recovering. They depleted their HSA in the process and needed money to cover the time John was out of commission.

As a small business owner, he wasn’t able to take much PTO, and they needed an income stream. Their youngest was also finishing a master’s degree, and they wanted to continue to support him, as well as finish strong with their retirement funding. Jane was able to preserve their financial plan by taking a loan from their policy to help cover medical procedures and general expenses.

Death Benefit

When John died a few years later, Jane tapped their death benefit to help her with funeral costs and medical bills and keep her retirement plan going at the same rate for the last few years of her career. The death benefit had been reduced by $100,000 from John’s earlier medical bills, but there was still enough in it to keep Jane’s retirement plan intact.

When You are Considering Your Legacy

Gary and Glenda have a successful business – in this case, a farm – they are looking forward to passing on to their son. Their assets are well into the seven-figure range; the business has held its value.

Gary and Glenda bought a whole life insurance plan in the 1970s with minimal payments that didn’t impact their overall financial plan. The policy has built up a lot of cash value and has a $1 million death benefit. Now they are entering a new phase of life, and their advisor has recommended two strategies:

Stop Paying the Premiums

They’ve built up enough cash value in the policy that it can pay its own premiums. Essentially, it no longer touches their budget.

Eliminate Existing Debt

Their advisor also recommends they use funds from this plan to pay off debts the business has rather than pass on these debts to their son when he takes over.

Their advisor then recommended, in addition to the whole life insurance policy they already own, that they buy a universal hybrid life policy in their 60s, for the following reasons:

Long-term Care

The hybrid policy also contains long-term care insurance for nursing care – especially valuable because Medicare offers almost no coverage, and the majority of their assets are tied up in the farm.

Estate Planning

Gary and Glenda have two kids. Their daughter has never had an interest in the family business. But Gary and Glenda wanted to leave both their kids an equal legacy. Having a death benefit in place helps make it possible their daughter will receive a death benefit of $2,000,000 and their son will receive the farm valued about the same.

Life Insurance as a Tool

Like other tools such as a 401(k) and IRA, life insurance can be an investment that pays off when buoyed by strategic advice. Applied the right way, it can help keep your financial plan in place for your family and your future.

Our financial advisor team can help you see how the whole picture fits together and help you put together a life insurance strategy that lines up with your goals.

Get in Touch

In just minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Contact Us
Business professional using his tablet to check his financial numbers

401(k) Calculator

Determine how your retirement account compares to what you may need in retirement.

Get Started