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Retire With Confidence is the podcast designed to help you move beyond the fear of the complexity of finances so you can be financially free to achieve personal significance. Tune in with Josh Duncan each week to turn fear into fuel that drives you into Freedom & Significance.
Welcome to the retire with confidence podcast. If you're a high earning professional, business owner, or someone approaching retirement and wondering whether you are truly on track, you are in the right place. This podcast is all about helping you make smart, confident financial decisions without the fear, confusion, or sales pressure that so often comes with money advice. Each episode is designed to break down complex topics like retirement planning, investing, taxes, and cash flow in plain English so you can understand what really matters and avoid the most common and costly financial mistakes. Everything you hear here is educational, fiduciary focused, grounded in real world planning experience working with clients just like you.
Josh:I'm your host, Josh Duncan, partner at F5 Financial Planning. Let's get started. Do you know how much life insurance you need? Well, let me start with a story about a family I'll never forget. John and Sarah were in their early fifties, two kids.
Josh:One was a freshman in college, the other was a sophomore in high school. Sarah had stayed home for most of their marriage, raising the kids, managing the household, doing all the things that don't show up on a paycheck, but absolutely make a family work. John was the primary income earner, and then unexpectedly, he passed away. No long illness, no time to plan, just one of those life events that turns everything upside down overnight. He had life insurance, dollars 500,000 of term insurance.
Josh:On paper, that sounds like a decent amount of money. A big number, half $1,000,000. But here's the problem, that $500,000 was not enough. Now Sarah is grieving the loss of her husband, trying to be emotionally present for two kids whose entire world just changed. And at the same time, she's staring down questions like, how do I pay the mortgage?
Josh:How do I help my kids finish college? How do I replace an income that disappeared overnight? How do I reenter the workforce in my fifties after being out for decades? This is the reality of life insurance planning when it's done halfway. And today, I wanna make sure you don't end up in this position.
Josh:In this video, we're gonna talk about how much life insurance a family actually needs during their working years, Why your need for life insurance is highest when your kids are young and still dependent on you. Why term insurance is almost always the right type of life insurance during this phase of life. And the very real risk of being duped into buying permanent life insurance because of flashy sales pitches about cash value and borrowing against it later. This is one of those topics where the consequences of getting it wrong don't show up immediately. But when they do show up, they're devastating.
Josh:So let's get into it. Life insurance exists for one primary reason during this phase of life where you have others dependent upon you. Income replacement. That's it. Not investing, not tax strategies, not forced savings, not building cash value.
Josh:The purpose of life insurance is to protect the people who rely on your income if you're no longer here to provide it. And that risk is highest during your working years, especially when you have young children, you have a stay at home spouse or a lower earning spouse, you have a mortgage, you have college funding goals, you have not yet reached financial independence. In other words, life insurance matters most when your family is most financially vulnerable. When your kids are little, your income isn't just paying today's bills. It's paying for housing, food, health insurance, childcare, activities, college, retirement savings for you and your spouse.
Josh:If that income disappears prematurely, the financial ripple effects are massive. And this is where many families underestimate how much insurance they truly need. Let's talk about that $500,000 policy for a moment. I see this all the time. Someone has half $1,000,000 of life insurance because that's what their employer offered.
Josh:That's what an insurance agent suggested years ago. That's what felt like a big number at the time. But life insurance planning is not about picking a round number that sounds comforting. It's about math. And when we actually do the math, $500,000 often falls far short.
Josh:Let's say the primary earner makes $150,000 per year. If that income needs to be replaced for even fifteen years, that's over $2,000,000 of lost income. And that's before we talk about inflation, taxes, college costs, health insurance, retirement savings that are no longer being funded. That's $500,000. It doesn't last very long.
Josh:So how do we figure out the right amount? There are different methods, but here's the framework we use. First, start with income replacement. Ask yourself, if I were gone tomorrow, how much annual income would my family need to maintain their lifestyle? Then ask for how long would they need that income?
Josh:For most families with young or teenage children, the answer is usually until the kids are earning a living, and until the surviving spouse has the option to work, not the obligation to panic. That often means replacing income for fifteen to twenty five years. Next, layer in major obligations, remaining mortgage balance, college funding goals, other outstanding debts, childcare costs, if applicable. And then subtract existing assets earmarked for these goals. What's left is typically the amount of life insurance needed.
Josh:When families go through this exercise honestly, the number is often closer to $1,000,000, $2,000,000, sometimes more. And yes, that can feel uncomfortable at first. But remember, this insurance is not permanent. It's temporary protection for a very specific phase of life. Here's an important point.
Josh:Your need for life insurance is not constant. It peaks during your working years and declines over time. When your kids are young, independent, your need is high. As your kids grow up, graduate, and become financially independent, your need decreases. As your mortgage gets paid down, your need decreases.
Josh:As your investments grow and you move closer to financial independence, your need decreases. Eventually, if you've planned well, your need for life insurance may go to zero. That's exactly why term insurance makes so much sense. Term insurance is simple. You pay a premium.
Josh:You get a death benefit for a specific period of time. If you pass away during that term, your family gets the payout. If you don't, the policy expires. That's it. No bells, no whistles, no confusing illustrations.
Josh:And that simplicity is a feature, not a flaw. Because during your working years, your goal is protection, not complexity. Term insurance allows you to buy a large death benefit for a relatively low cost precisely when your family needs it most. That means you can afford to properly insure the risk instead of under insuring it. Also, if your insurance need decreases, you can reduce the amount of insurance you have by filling out a form.
Josh:You cannot increase your coverage this easy, but reducing the amount is easy. Let's talk about the elephant in the room, permanent life insurance, whole life, universal life, index universal life. If you've ever talked to an insurance salesperson, you've probably heard some version of this pitch. It's not just life insurance, it's an asset. Or your cash value grows tax deferred.
Josh:You can borrow against it later. It's a great supplement to retirement. You can be your own bank. And on the surface, this can sound very compelling. Who wouldn't want an insurance policy that also grows cash value and can be used later?
Josh:Here's the problem. The pitch focuses on what the policy might do decades from now, while distracting you from what you actually need today, which is a large amount of protection. Permanent life insurance is expensive, very expensive. Why? Because the insurance company is guaranteed to lose and will have to pay out the death benefit.
Josh:With term insurance, the insurance company may not lose and doesn't have to create a fancy product that lets you keep some of your money. For the same premium dollars, permanent insurance provides a fraction of the death benefit that term insurance does. That means families often end up with policies that are too small, too expensive, and poorly aligned with the real risk. I've seen families pay thousands of dollars per year into permanent policies, only discover that they still don't have enough coverage if the primary earner dies. They were sold on cash value growth, but what they needed was income replacement.
Josh:And the reality is most families are better off investing separately and insuring separately. Insurance should insure. Investments should invest. When you mash them together, both usually suffer. Let's talk about cash value for a moment.
Josh:Yes, cash value can grow, but only after the cost of the insurance is paid. Yes, you can borrow against it, but the loans are not free. They reduce your death benefit. They accrue interest, and the growth is often far lower than what disciplined long term investing can achieve. More importantly, the early years of permanent policies are brutal.
Josh:High commissions, high fees, very slow cash value accumulation, which means families are locking themselves into expensive commitments during the exact phase of life when cash flow flexibility matters most. This is how people get trapped. If you're in your thirties or forties with kids at home, every dollar matters. You're juggling retirement savings, college savings, mortgage payments, day to day life. Overpaying for permanent insurance often means underfunding retirement, underfunding college, or worse, being underinsured.
Josh:And when the unexpected happens, the consequences are irreversible. The family in our opening story didn't need a policy with cash value. They needed enough death benefit to replace income, fund education, and create stability. They needed term insurance. They just didn't have enough of it.
Josh:One more important point to revisit. Life insurance coverage can be reduced if needed. If your term policy was designed to last through your children's college years, but they all went into the trades after high school, you can reduce your coverage. This process is as simple as completing a form for the insurance company. Let me leave you with a few common mistakes I see over and over again.
Josh:Number one, relying solely on employer provided life insurance. It's often not enough, and it usually goes away when you leave your job. Number two, picking an arbitrary number instead of doing the math. Life insurance is not about what sounds good, it's about what works. Number three, buying permanent insurance because of a sales pitch instead of a plan.
Josh:If the focus is on cash value instead of income replacement, be very cautious. Number four, not revisiting coverages life changes. Marriage, kids, income changes, mortgages, these all matter. Life insurance planning isn't fun. It forces you to think about uncomfortable what ifs.
Josh:But it's one of the most loving financial decisions you can make for your family. During your working years, when your kids depend on you and your income is the engine that powers everything, the goal is simple. Protect the people you love. For most families, that means properly structured term life insurance sized correctly for the years it actually matters. Not flashy products, not complicated promises, just thoughtful, intentional planning.
Josh:If you found this episode helpful, please consider subscribing to the podcast and leaving a review. It helps more people find the show and continue learning how to make smarter financial decisions. I'm Josh Duncan, partnered F5 Financial Planning. If you would like to learn more about how we help our clients achieve financial freedom for personal significance, please visit our website at www.f5fp.com. Thanks for listening, and I'll see you in the next episode.