2022’s economy is bleak. We can place blame in many places, but only sound economic solutions will reduce inflation.
Gas costs $5 per gallon and diesel doubled in 18 months. We’re seeing price hikes for groceries and other essentials for American households.
Increasing fuel costs will increase the cost of shipping by truck, train, plane, or ship. Worse, inflation can happen overnight. Those “in the know” warned us, but who listens?
Inflation and life insurance rates?
Good news first! Today’s or tomorrow’s inflation won’t cause your insurance prices to rise.
Your life insurance premiums are locked in for the duration of the policy, whether it’s term or permanent like whole life.
Term Life Insurance
Term life insurance rates only increase when the policy expires or is renewed.
This is why you should obtain the longest term life insurance your budget will allow. Term policies were normally offered from 5 to 30 years, although some businesses now provide 40-year policies.
Some companies sell term life insurance with rate increases every one or every five years. No thanks. In the long run, they cost more than a 20- or 30-year coverage.
If you have a 5-, 10-, or 20-year term life insurance policy, don’t stress. Remember, If you renew or convert it after the period though, the prices will be depending on your age and much higher.
Whole Life
Like level term life insurance, whole life insurance cannot increase rates for the rest of your life. Whole life or universal life insurance premiums are diverted to a cash-value account.
Your money grows tax-deferred since the cash value account earns a guaranteed interest rate. You can utilize dividends from a mutual insurance policy to acquire paid-up life insurance (small additional policies that earn interest and dividends). This means you’ll only pay taxes on the interest credited to your account if you withdraw it. If you take only the premium component, the withdrawal is tax-free because you paid premiums with after-tax cash.
My budget and inflation?
Wow! Many policyholders underestimate the importance of life insurance for their families. When times become difficult, these policyholders cancel or cash in their life insurance (like right now).
Before we address how to prevent canceling your policy because inflation is killing your budget, let’s discuss why you got it and what could happen if you cancel and try to get a new policy when inflation subsides and your budget stabilizes.
Why you Bought Life Insurance
Most people buy life insurance to help their loved ones financially after they die. Most wish to replace their income for essentials like:
Survivors’ expenditures
Pay off your mortgage
Pay a child’s college expenses
Fund a survivor’s retirement plan
Divorce decrees oblige certain people to buy life insurance. If this is you, terminating your life insurance could lead to court consequences.
Finally, some people get permanent life insurance to support a LIRP (Life Insurance Retirement Plan), and canceling it is like canceling a 401(k) without penalties.
What Can Happen When You Need to Replace a Policy?
Life occurs, so canceling a life insurance coverage to repurchase it later is risky.
Your policy’s rates were based on your age, health, and death benefit. What if you get sick before replacing the canceled policy? Your age and health could affect your rates.
If life insurance firms sense the financial effect families are facing, many would raise rates due to predicted increases in operational costs. Remember, before you hit “cancel,” life happens.
Reduce your budget to keep your life insurance
People cringe when they learn they must cut monthly costs to pay life insurance. However, when you’re forced to make difficult decisions for the larger good, like financially preserving your family, those decisions can be incredibly rewarding to those who love and depend on you.
But inflation never lasts. During Jimmy Carter’s presidency, I paid 12.5% interest on my home and waited an hour to get gas. Most inflation crises are addressed when a new administration enters the White House or a new party takes over congress and the senate, according to history.
Every person or family can lower their monthly budget with a few adjustments. Here are some things we can do without for now:
Eat with less
Forgo family vacations for a year or two (this is huge)
Keep cars in good shape rather than trading.
Reduce electric and water bills through conservation and awareness
Stop using Netflix, Hulu, and Prime Video
Buy an indoor or outdoor antenna and cancel cable
Gas down
Every 6 months, shop automobile insurance (should be doing this anyway)
Reduce high-interest loans and credit cards
Spend less on groceries if you can.
Certainly, this is not an entire list, and there are definitely several on it you’d like to debate about, but the most crucial issue that didn’t make the list because you should never contemplate it, is canceling your life insurance.
What about Life Insurance Companies?
Life insurance firms are unlikely to go bankrupt due to inflation (it’s temporary). If you choose a life insurance business without financial stability, there’s no guarantee it will be there when you need it.
You should only get life insurance from a firm rated “A” or higher by national rating services. Even if most states have a “guarantee fund” to cover consumers if a life insurance firm fails, who’s to say there will be enough?
In exchange for a premium, a life insurance policy promises to provide a benefit. But the corporation must keep its commitment for life. Never choose a “B”-rated insurance carrier to save a few dollars.
In sum
All Americans, especially the poor, are worried about inflation and life insurance. Our priorities are food, job, and family.
The latter is most vital to most Americans, therefore if you consider life insurance non-essential, you’re wrong.