How to replace $65,000 in lost income over 20 years

Depending on how you structure it, term life insurance can be used to help replace lost income in the event of a death. Death proofing your income means making sure that things go as planned even through unexpected death. The cost of a funeral, future debts and your mortgage can destroy any previous plans to put the kids through university or for the future of your business. As such, it's very important to plan for the unexpected death of a family member and the associated loss of income.

A plan with Term Life Insurance can be put in place to help replace lost income because of death. For an income like $65,000, this kind of policy structure pays a death benefit of about $1,004,000 tax-free, and then is re-invested and lived off of for 20 or more years. What this allows a family to do is get back up on their feet and still pursue their original goals.

Investing the Benefit and Compensating for Inflation

To ensure that you're meeting your goals as efficiently as possible, both inflation and investment considerations must be taken into account. Subsequent to death, the benefit could be invested and the income taken from the investment should increase year-to-year to compensate for inflation. At a typical investment rate of 6%, adjusting for 3% annual inflation and withdrawing $65,000 in today's dollars, it would take 20 years for a death benefit worth $1,004,000 to be exhausted.

Above: This graph shows how the benefit could be consumed over 20 years. The major point of this graph is to demonstrate the difference between investing the insurance benefit and not investing it. $1,004,000 will last 20 years when invested, but as you can see, if not invested the principal amount is exhausted earlier, and you would need a larger amount to cover the same period of time.

You will benefit greatly from talking with a financial planner before making any decisions. Your planner will help you go over the specific of this structured insurance plan and determine the right numbers, find the best term life insurance policies and give you some alternatives.