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Inflation and life insurance: Ensuring protection amid uncertainty

February 12, 2024 Article 4 min read
Patrick Serda Ronda Davis
Inflation raises the cost of living and erodes the purchasing power of every dollar. Here’s how to help ensure your life insurance can keep up with today’s economy.
Happy couple walking into hotel with their toddler.For most people, life insurance is a vital part of an effective financial plan. Higher inflation, a higher cost of living, and uncertain economic conditions make financial planning more complicated — because high inflation raises prices today and erodes the purchasing power of future dollars tomorrow. It can also tempt you to skimp on coverage or let a policy lapse.

A closer look at your insurance policy might also reveal how much the family depends on your financial contribution and just how pressured they’d feel if you were no longer here.

A death benefit that seemed sufficient just a few years ago may not stretch as far tomorrow, according to the Bureau of Labor Statistics, which tracks the consumer price index. For example, a $1,000,000 death benefit purchased 20 years ago wouldn’t go as far in today’s economic environment. Rising costs of essentials like housing, healthcare, and education further magnify this gap.

A death benefit that seemed sufficient just a few years ago may not stretch as far tomorrow.

That’s why now is a perfect time to review your insurance policies to be sure you and your family are adequately protected, despite inflationary pressures. This is especially true if you’re tempted to save by buying less insurance than you really need, or even worse, if you’re tempted to forego life insurance altogether. Neglecting to adjust your coverage could leave your estate or loved ones facing financial hardship at an already difficult time.

So, how do you navigate this financial landscape? Here are some key steps:

1. Review your current debt and financial obligations

To help your loved ones maintain their standard of living, review your outstanding debts, including mortgages, student loans, and car payments. Calculate upfront cash needs, survivor spending needs, and current savings. Factor in the future needs of your dependents, such as children's educational expenses and potential healthcare costs. These amounts change over time and are more greatly impacted during times of higher inflation.

2. Review your current life insurance policy

Next, take a look at your existing life insurance. Do you have enough protection and the right kind of coverage? Assess the death benefit(s) against your current and projected family needs, factoring in inflation and rising costs. Consider additional coverage as needed.

3. Select the right kind of policy

While ensuring adequate protection is crucial, over-insuring can be a financial drain. Select an insurance product that strikes a balance between meeting your dependents’ needs and avoiding unnecessarily high premiums. Generally speaking, your most common options are:

  • Temporary life insurance. Term life offers pure death benefit protection at lower premiums, which are ideal for short-term needs. The premium is typically fixed for a period of years and the benefit doesn’t change. While term insurance is the most cost-effective type of coverage, it can be more susceptible to inflation risk due to its lack of cash value and flexibility.
  • Permanent life insurance. Products such as universal life or whole life are typically designed with fixed premiums and have benefits that can last for a lifetime. While these policies cost more than term life, they can build cash value over time, which can be accessed through loans or withdrawals, offering additional financial flexibility. The cash value protects you against inflation since it can increase the death benefit over time.

4. Seek professional guidance

Consult a licensed insurance agent to help you assess your needs, compare policies and carriers, and find the most suitable coverage at competitive rates. Be sure to compare quotes from different insurers to find the best value for your money.

Ultimately, your plans for life insurance should be based on your family’s needs — whether that means going for maximum coverage, purchasing a smaller policy you can afford now, or planning your life insurance when your finances allow.

Consider your options and start planning now

In today’s challenging economic climate, a proactive approach is essential. By assessing your needs, exploring options, and seeking expert guidance, you can help ensure your life insurance provides the protection necessary, even in the face of high inflation and a rising cost of living. 

The material contained in the article is for informational purpose only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation, or needs of individual investors. Any tax advice contained herein is of a general nature. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This is being provided solely as an incidental service to our business as insurance professionals.

Securities are offered through Valmark Securities, Inc. member FINRA and SIPC, an unaffiliated securities broker-dealer. 

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