How Does Inflation Impact Life Insurance? - United Benefits

Inflation has been a hot topic lately. One of the most important economic indicators is how the prices of goods and services change over time, also known as the rate of inflation. Over time, your dollar will not stretch as far. Inflation impacts all of your assets, but one area that you may overlook is your life insurance coverage.

Life insurance is chosen based on how much financial protection you believe your family will need upon your passing. If inflation takes an unexpected turn, your beneficiaries may not have as much coverage as you’d like. 

Traditionally the inflation rate in the United States is expected to be roughly 3% each year; however, the COVID-19 pandemic and other economic factors have impacted the inflation rate. The annual inflation rate in the United States has increased from 3.2% in 2011 to 4.7% in 2021. As of January 2022, the inflation rate rose to 7.5% over the last 12 months, meaning that the purchasing power of the U.S. dollar has weakened in recent years. Inflation can have a far-reaching effect, but there are several options to ensure your family has the coverage they need.

Inflation is inevitable, but here are a few strategies you can put into practice to help mitigate the effect on your life insurance policy.

Indexation

Some life insurance policies link your premiums with any number of figures intrinsically tied to inflation, such as the Retail Price Index and the Average Earnings Index. Indexation means that your policy will adjust as inflation naturally occurs. Indexation usually cannot be added to an existing policy, so you’ll need to decide in advance if this is important to you.

Policy Riders

For an additional fee, some life insurance companies offer a policy rider (a clause built into your policy that provides extra protection) that protects against inflation. Protection against inflation  is often accomplished by increasing the benefit each year to offset the economic conditions. This kind of rider needs to be added before purchasing the policy.

Periodic Coverage Boosts

If you already have a life insurance policy, adding additional coverage to your existing policy may be the easiest way to keep up with inflation. A periodic coverage boost allows you to factor the inflation rate into your coverage based on your specific needs. You can course-correct as the years go on.

Protecting Life Insurance from Inflation

Adjusting your life insurance coverage for inflation is a critical part of planning for your financial future. Whether you currently have a life insurance policy or would like to explore your options, United Benefits can help to ensure your plan’s long-term success. Fill out the form below to speak with a United Benefits Specialist.

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