By Raymond Nash
Inflation Affects Life Insurance
Policy Audits Can Help
Inflation can impact all your assets, but one often overlooked area to consider is your life insurance portfolio. For example, inflation might cause the buying power of the death benefit to decrease when it is paid out to the beneficiaries. Inflation does not follow a predictable pattern, so it’s tough to estimate a life insurance need. Over the past 12 months, the Consumer Price Index climbed to 3.7%. Any estimates for growth lower than 3.7% might result in a life insurance gap.
While the interest rate inside of a policy might increase the cash value or dividend (for whole life policies), another area of concern when considering inflation is policy loans. Most permanent policies allow for policy loans, but whole life policies in particular offer an automatic premium loan option where a loan can be taken out against the policy to pay the premium. Since the policy loan does carry an interest rate, it can be affected by inflation.
It is important to monitor a policy on an ongoing basis to assess the amount of coverage that is needed and any possible effects of outside influences to the policy performance, especially if the policy has a loan against its cash value. Additionally, significant life events (marriage, new children, etc.) might warrant additional coverage. A policy audit can help to determine if a policy is performing as it was intended.
Click on the link below to understand the components of a policy audit. The purpose of a policy audit is to outline any problems with the current portfolio, including ways that inflation might be affecting your clients’ policies, and offer solutions. Contact us with any questions or opportunities to help your clients achieve their goals. This is what we enjoy doing for only a select number of families, businesses, and charitable institutions each year, and we look forward to hearing from you.