Life Insurance And Inflation

Life Insurance—Predicting Future Needs

When purchasing life insurance, one frequently overlooked consideration is inflation or the future value of money. If you are purchasing a term life insurance policy for only a few years then inflation may not be a major consideration, but if you are interested in a longer term policy—for example, 20 or more years—or if you are obtaining whole life insurance quotes, then the future value of money should play a part in your calculations.

Inflation increases more rapidly in some sectors than others. For example, the cost of health care and education have increased much faster than other areas of the economy so to plan for the future needs of your family it is wise to calculate the rate of inflation for education and health care independently of regular living expenses.

However, inflation is a very real risk for all ages since the future value of money may not support your current lifestyle. For example, if your current bills require a minimum household income of $75,000 then be sure to calculate inflation of 3% to 5% annually for regular living expenses and 8% to 10% annually for medical and education costs.
