How Does Inflation Impact My Life Insurance Policy?
With inflation on the minds of many investors, how do you protect against those risks, and what top strategies could help better position assets? Talk of inflation is seemingly everywhere, taking up headline after headline in the media, news articles, website postings, etc. Prices for key items – oil, lumber, steel and real estate – have all been moving higher, and the expectations are that some of that inflation could be with us for quite some time. If you have a life insurance policy, it is likely your most valuable asset, other than your home, and it is important to understand how inflation could impact your life insurance policy.
To put things in perspective, inflationary environments often see asset prices rise, but they can be challenging for assets that have a fixed value, like bonds and life insurance. As inflationary pressures increase, interest rates also tend to rise. For bonds, the value of the bond decreases as the fixed interest payments are lower than current interest rates. In addition, the value in current terms, that is the purchasing power, of the end value of the asset decreases. This is where bonds and life insurance policies have similarities – the end value, in the case of life insurance, the death benefit, is worth much less. This is why financial advisors typically recommend decreasing the allocation of bonds in an investment portfolio when inflation is increasing. While typically overlooked by advisors, the same logic applies to life insurance. In inflationary periods, a life insurance policy should be evaluated to see if will still provide the same benefits expected when the policy was taken out.
Many investors think about performance on an absolute return basis, but it is important to think about how inflation can impact your financial plans overall. In the short term, does your income need to increase to accommodate the increased costs of goods and services? Does your life insurance policy meet your needs or should that asset be sold with funds deployed in more appropriate ways? Does your plan account for inflation, and will your portfolio be able to keep up with rising costs? Now is a good time to re-engage a financial advisor and ask if your plan is aligned with higher inflation expectations. This engagement should include a review of your life insurance policy.
For additional information about how to prepare and protect yourself from inflation, refer to this article from Kiplinger.
You can get an instant estimate of the value of your life insurance policy by visiting the Q Life Settlements calculator. You can also call Q Capital at 866-679-9410 or email us info@qcapital.com to discuss your situation. Our team is available and ready to explain to you all that you would want to know about life settlements.
Remember: Never abandon a life insurance policy without looking at the life settlement option first!
