Inflation & Life Insurance: Will You Have Enough?
Inflation seems to have everyone looking over their monthly budget these days. The costs of gas, housing and eggs have increased dramatically over the past two years. With inflation driving up the cost of living, it can be difficult to determine how much life insurance you need. If you buy a policy with today’s prices in mind, it might not provide enough for your family to buy groceries or pay the rent in the future.
Traditionally, the inflation rate in the U.S. is considered to be about two to four percent every year. While it doesn’t appear like much at first, even a small deviation from this rate of increase can have far-reaching effects over the course of two decades. What’s more, in 2022, the average inflation rate was eight percent, according to the Consumer Price Index (CPI).
Despite being unable to avoid inflation, we can prepare for it. Learning to factor in the economy to your coverage can help you stay better prepared for the future. Below are a few things to consider when it comes to inflation and life insurance.
Can inflation change life insurance premiums?
Inflation or other economic changes will not change your life insurance premiums, regardless of if you have a Term, Universal or Whole life insurance policy. The only time you’ll have to worry about a change in your life insurance premiums is when your Term life insurance policy expires. When you purchase your life insurance policy, your rates are locked in. This is why it’s beneficial to shop for life insurance earlier rather than later, making it easier to get more affordable premiums.
But keep in mind that because of inflation, the purchasing power of the dollar is reduced and it is not able to buy the same amount of coverage as it could in the previous year. The premium you pay for life insurance today will be the same, but keep in mind that a dollar today won’t be worth as much 10 years from now because of inflation.
It’s a great idea to review your life insurance policy annually as part of a general financial health check. For example, if you go through a significant life event, such as buying a house, getting married or having children, you may need to increase your coverage. When adjusting the policy’s face value, speak with your local Member Advisor about how the new amount should be adjusted for 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, contact your local Catholic United Financial Member Advisor.