Inflation
and Your Life Insurance
It's been
many years since U.S. consumers have experienced the jolting effects of
double-digit spikes in inflation. Over the last 20 years, the average yearly
increase in the Consumer Price Index (CPI) was around 3 percent.¹
An inflation rate
of 3 percent may seem good by historical standards and is probably not enough to worry most Americans. But if you have a life insurance policy, you may want to
consider the cumulative effects of 20 years of inflation on your eventual death
benefit.
The inflation
rate, or CPI, measures the price changes of common goods and services purchased
by urban households. Over time, prices can rise significantly, decreasing the
buying power of your dollars.
For example, a
$200,000 death benefit paid in 2004 would have the same buying power as a
$110,000 death benefit in 1984.² Thus, if an individual had purchased a life
insurance policy 20 years ago, the current value of the death benefit would seem
like much less today than when the policy was purchased.
Upon
review, you could find that the death benefit of a policy purchased many years
ago would not provide the standard of living for your family that you once
imagined. If so, you may need to purchase additional insurance coverage to help
bridge the gap and make up for the effects of inflation.
If you are just
now purchasing life insurance, don't forget to think about the potential for
inflation over the next 20 years or more. It's impossible to predict the
inflation rate over time, but it could potentially rise more than it has during
the past two decades.
With the
cumulative threat of inflation looming, you may want to consider purchasing a
larger death benefit than your family would need by today's standards. Please
call if you would like to review your life insurance needs.
1)
Thomson Financial: U.S. Consumer Price Index for the period December 31, 1984,
through December 31, 2004
2) Bureau of Labor Statistics, CPI Calculator
