Planning for Every Generation Series
Here’s a thought experiment worth sitting with for a moment.
If someone told you they didn’t have homeowner’s insurance, you’d probably think they were being reckless. A home worth $400,000 or $500,000, uninsured, is an enormous risk - the kind of thing that could wipe out a family’s financial footing in a single event.
Now consider this: most people in their thirties and forties are generating $100,000, $150,000, or more in annual income. Over a thirty-year career, that’s a revenue stream worth millions of dollars. And some of them have little or no life insurance protecting them.
The logic is identical. The instinct, somehow, is not.
What’s Actually at Stake
The purpose of life insurance when you’re young isn’t to leave a legacy or build wealth. It’s simpler than that: it’s to make sure that if something happens to you, the people who depend on your income can continue to function financially.
Think through the math. A $500,000 life insurance policy sounds like a substantial sum. But invested conservatively and drawn down sustainably - at roughly 3% per year - that generates about $15,000 annually. For a family accustomed to a household income many times that, $15,000 a year isn’t a replacement. It’s a partial buffer at best.
Which means that for most families with children, $500,000 may be a starting point, not a finish line. The right number depends on income, expenses, outstanding debt, and how many years remain before the children are financially independent. These are not complicated calculations, but they require someone to actually run them.
The Case for Term Insurance
For most people in their thirties and forties, the right answer is straightforward: term life insurance, bought early, in meaningful amounts.
The math works in your favor when you’re young. Insurance companies pool risk across a large population, and younger, healthier people represent lower risk. That translates into lower premiums - often significantly lower than people expect. A 35-year-old in good health can typically get a substantial amount of coverage for a monthly cost that most budgets can absorb.
A 20- or 25-year term policy bought at 35 carries you to 55 or 60. By that point, if you’ve been investing consistently, the children are grown, and retirement savings are in place, the need for life insurance often diminishes or disappears entirely. The policy has done its job.
The group life insurance that many employers offer is worth taking advantage of - the rates are typically attractive and in many cases there’s no underwriting required. But it’s rarely sufficient on its own, and it doesn’t travel with you if you change jobs. Think of it as a foundation, not a complete solution.
Don’t Overlook Disability
Life insurance gets most of the attention, but disability insurance deserves equal consideration and yet usually receives far less of it.
The reasoning is straightforward: the risk of becoming unable to work due to illness or injury is, statistically, more likely during your working years than the risk of death. Yet most people give disability coverage little thought until something happens.
If your employer offers disability insurance, use it. A policy that pays 60% of your salary in the event you can’t work is a meaningful backstop - not ideal, but far better than nothing. If you’re self-employed or your employer doesn’t offer coverage, it’s worth exploring individual options.
The general principle is the same as with life insurance: protect the income stream first. Everything else - the savings, the investments, the retirement plan - depends on your ability to keep earning. Remove that, and the rest of the financial plan is in jeopardy.
The Right Time Is Now
There’s a tendency to put off insurance conversations because they require confronting uncomfortable possibilities. Nobody wants to think about dying young or becoming disabled. The discomfort is understandable.
But the cost of waiting isn’t just emotional. It’s financial. Insurance gets more expensive as you age, and health changes can affect your ability to get coverage at all. The 35-year-old who is easy to insure today may face a different situation at 45.
More than that, the people who depend on you don’t have the luxury of waiting while you get around to it. Protecting your income and your family isn’t a task for someday. It’s one of the few financial decisions that genuinely can’t be undone after the fact.
The conversation doesn’t need to be complicated. It just needs to happen.
Rawe Financial is a family-owned financial advisory practice in Northern Kentucky, helping individuals and families at every stage of their financial journey. If you are thinking about how to protect those you care about, we’d welcome a conversation.