Life insurance is meant to help you feel more confident about the future, knowing your family is financially protected against a worst-case scenario. But with inflation taking a bite out of emergency funds and making it harder to save for college, it can feel like now is the more urgent time period to worry about. When inflation is up and investments are down, is life insurance still a worthwhile way to protect your family?
We looked into how inflation affects your current life insurance policy and got expert insight into how insurance companies stay prepared to meet their clients’ needs.
Most families are juggling multiple important priorities at once. The most urgent problem with high inflation is how it affects your day-to-day bills, as well as your ability to prepare for the future the way you planned.
Brian Stricker, Chief Insurance Officer at Fabric, says, “People’s costs are going up so dramatically and so quickly, many people who were already on a tight budget are truly faced with giving things up that they don’t want to give up.”
The annual inflation rate in the United States hit 9.1 percent for the 12-month period ending in June 2022. Some types of insurance, like homeowners insurance or car insurance, may be required. Life insurance isn’t, so when prices are higher for everyday expenses, life insurance may be one of the nonessential expenses that families put on the back burner.
“The good news is, life insurance that you already have in place oftentimes is guaranteed. What I mean is guaranteed premiums and death benefits. If you already have a policy in place, it’s just a matter of, ‘Can I keep affording these premiums?’” Stricker says.
Term life and whole life insurance policies are two kinds of life insurance that hold the benefits and monthly premium payments constant at the same fixed rate over time. In other words, if you already have a policy, there’s a good chance that your premiums are guaranteed not to increase over time, even while you continue to receive the same amount of coverage.
(Some more complicated types of life insurance, like universal or variable universal plans, might be more subject to change, so read the details carefully if you have or are interested in that type of policy.)
If your budget is so tight that you’re compromising on basic needs, you may not have much choice but to hold off on getting life insurance. It’s worth noting that a tight budget is also a sign of how much your family depends on your financial contribution, and just how pressured they’d feel if you were no longer here. Making room in the budget for insurance coverage could be an important way to add another layer of financial security for your loved ones.
When you buy life insurance, you pay for a certain amount of coverage, or the “face value” of the policy. For example, you might buy a term life insurance policy for $500,000 for your family.
Inflation or market changes won’t affect the face value of your policy, although they might affect how far that amount stretches toward certain expenses.
In some cases, such as if you have a whole life insurance policy rather than term life, your policy may have a cash value component as well. Permanent life insurance policies can vary, so check with your provider. Generally, though, the cash value component of whole life is set to grow at a guaranteed minimum rate, despite what happens in the market.
You’re more likely to see market conditions affect your whole life policy in your dividends. Participating whole life insurance plans offer policyholders dividends, or a slice of the profit the insurance carrier makes on their investment. The dividend does not have a guaranteed rate of return so when investments are down, you may not see those dividends reach your account.
Inflation affects companies’ bottom lines, too. From the insurer’s point of view, Stricker says, “Two general categories of expenses are the costs that we pay as an insurance company to underwrite a policy and the expenses associated with maintaining a policy.”
Insurance underwriters assess information about a person’s health and lifestyle to determine what their risk level is and how to price a policy appropriately for them. “We might require a medical exam so we can get a really good understanding of their health risks… If the costs of those tests are going up, then the actuary will need to reflect that in their pricing,” Stricker says.
What that means is it’s possible that life insurance premiums may go up for new customers because of the extra costs insurance companies face. The pandemic has already led to projected life insurance cost increases in some markets. That said, as of early 2022, life insurance premium rates were holding steady in the U.S., which is good news for people considering purchasing a policy.
If your retirement funds or college savings are affected by swings in the stock market, do you need to be worried that a life insurance policy wouldn’t be able to pay out? Not really, Stricker tells us.
“We’re one of the most heavily regulated industries, and that’s good,” he says. “All customers get from us is a promise, so it’s critical that we provide assurances. Reserves are very specifically prescribed by the state, and they make us calculate those in a very conservative way so that in any scenario, there’s going to be enough reserve there for us to pay our obligation.”
Life insurance companies also participate in guaranty funds, which are established by each state to protect consumers in the rare event that an insurer wouldn’t be able to pay a policy benefit.
Overall, regulations and state-maintained funds mean consumers can feel confident that their insurer will be able to deliver on the coverage they promise.
On one hand, your budget may already feel strained by increased prices on day-to-day goods. If life insurance premiums rise, it might feel harder to afford coverage. On the other hand, a tight budget may be another reminder that your family might struggle to make ends meet without you.
“I do think now’s a good time to get some baseline level of coverage,” Stricker says. One budget-saving compromise could be to think about a lower coverage amount. “If an agent tells you $1 million is the right amount to buy and you can’t afford a million, you might choose a lower amount that you can afford, like $200,000.”
One strategy could be to identify a top financial priority, such as paying off your home. Maybe a policy to cover your remaining mortgage is affordable, while enough coverage for three kids’ college tuition wouldn’t be. Ideally, of course, you’d get a policy that covers your whole list of goals, but going for “partial credit” can be worthwhile, too.
If you’re struggling to afford your current policy, Stricker says it’s worth contacting your insurance company. Their team may be able to help modify a policy or suggest options to make your coverage more affordable.
High inflation and economic changes can make times more challenging and uncertain for everyone. Your top priority is making sure your family is secure and that you’re providing what they need. Your plans for life insurance should be based on your family’s needs — whether that means going for full coverage, shopping for a smaller policy you can afford or planning to look into life insurance when your budget permits.
When you’re able to fit life insurance in with your other obligations, it can help you feel more prepared for whatever the future may bring.
Fabric exists to help young families master their money. Our articles abide by strict editorial standards.
Fabric by Gerber Life exists to help young families master their money. Our articles abide by strict editorial standards.
Information provided is general and educational in nature and is not intended to be, and should not be construed as, financial, legal, or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. We make no warranties with regard to the information or results obtained by its use, and disclaim any liability arising out of your use of, or reliance on, the information.
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Term Life Insurance Policy Series ICC22 2205-4004 WSA and Accelerated Death Benefit Rider policy series ICC22 2205-2623 WSA (and state variations where applicable) issued by Western-Southern Life Assurance Company, Cincinnati, OH which operates in DC and all states except NY, and distributed by Gerber Life Agency, LLC using Fabric Technologies. Gerber Life Agency, LLC is an affiliate of Gerber Life Insurance Company (est. 1967). All are members of Western & Southern Financial Group (Western & Southern). Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Product provisions, availability, definitions and benefits may vary by state. Payment of benefits under the life insurance policy is the obligation of, and is guaranteed by, the issuing company. Guarantees are based on the claims-paying ability of the issuer. Products are backed by the full financial strength of the issuing company.
All sample pricing is based on a 30-year old F in Excellent health for the coverage amount shown and a 10-year term policy, unless otherwise stated. Gerber Life Agency, LLC (GLA) is an insurance agency licensed to sell life insurance products. GLA will receive compensation from Western-Southern Life Assurance Company for such sales. The NAIC Company Code for Western-Southern Life Assurance Company is 92622.
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