The Impact of Inflation on Life Insurance

by | Dec 2, 2023 | Inflation Hedge | 1 comment

The Impact of Inflation on Life Insurance




In today’s Better Wealth Episode of From the Frontlines, Jereme and I answer a question posed by one of our clients. Caleb walks us through the question with regards to using whole life insurance and how it relates to inflation and what impact does inflation have on our money as it is protected, grows and used. Where you house your money matters. The reason the AND Asset is so powerful is the control and liquidity you get in that asset class is key. However, listed to what Caleb believes is the greatest inflation protector – Value Creation!

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Inflation is a phenomenon that affects all areas of the economy, and life insurance is no exception. When inflation occurs, the cost of living increases, and this can have a significant impact on life insurance policies.

One of the most important ways that inflation impacts life insurance is in the value of the policy’s payout. When policyholders purchase a life insurance policy, they do so with the intention of providing financial security for their loved ones in the event of their death. The payout from the life insurance policy is meant to help cover expenses such as funeral costs, outstanding debts, and ongoing living expenses for the beneficiaries. However, if the policy’s payout does not keep pace with inflation, the value of the payout may be eroded over time. In other words, the beneficiaries may find that the payout is not enough to cover their needs due to the increased cost of living.

Inflation can also impact the cost of life insurance premiums. As the cost of living increases, insurance companies may need to raise the premiums on their life insurance policies in order to keep up with the rising expenses associated with providing coverage. This can make life insurance more expensive for policyholders, particularly for those who are on fixed incomes or who are struggling to make ends meet.

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Another way that inflation impacts life insurance is in the cash value of certain types of policies, such as whole life or universal life insurance. These policies have a cash value component that accumulates over time, and this cash value can be used to borrow against or as a source of income in retirement. However, inflation can erode the purchasing power of the cash value, making it less valuable in real terms.

In response to the impact of inflation on life insurance, policyholders may need to consider adjusting their coverage over time. This can include reviewing and possibly increasing the amount of coverage in their policy to ensure that it keeps pace with the rising cost of living. It may also be necessary for policyholders to reassess their financial situation and make changes to their policy if they find that the premiums are becoming too expensive.

In conclusion, inflation has a significant impact on life insurance. It can erode the value of the policy’s payout, increase the cost of premiums, and diminish the purchasing power of the cash value in certain types of policies. Therefore, it is important for policyholders to be aware of how inflation can affect their life insurance coverage and to take steps to ensure that their policies continue to provide the financial security they need. This may involve regular reviews of their coverage and making adjustments as necessary to keep pace with the changing economic environment.

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1 Comment

  1. @stephensampson1

    I really like your comment about providing value as a medium of exchange. We seem to have forgotten what money represents. Money is a simple way of conveying a trade of products or services. Whereas bartering is cumbersome, the use of money makes or commerce run smoothly. The problem with our money today is that we allowed others to destroy what it represented as a medium of exchange and become this intangible gambling asset. When the asset deflates, then the money becomes worthless.

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