Will Your Payout Be Enough?

It can be hard to know how much life insurance you need, especially when inflation keeps driving up the cost of living. Gas, housing, eggs: they are much more expensive than 20 years ago. If you buy a policy with today’s prices in mind, it might not provide enough for your family to buy groceries or pay the rent in the future. 

We may be unable to avoid inflation, but we can prepare for it. Learning to factor in the economy to your coverage can help you stay better prepared for the future. 

Calculate for inflation 

The primary purpose of life insurance is to provide a safety net for anyone who relies on you financially. For example, if your salary covers the mortgage, utility bills and school fees, a life insurance policy can cover those expenses if you die. Calculating how much life insurance you need may include multiplying your salary by a certain number of years, adding up your debts and considering all the daily expenses you currently cover. 

While these calculations are necessary, they don’t account for inflation. When you buy coverage through an agent or broker, they may factor in inflation for you. But if you purchase coverage online, you may have to factor this in yourself. 

A simple way to do this is to use historical averages. For example, the average annual inflation rate for the 20 years prior to the pandemic (2000 to 2019) was roughly 2%, according to data collected by the Federal Reserve Bank of Minneapolis. 

But inflation does not always climb at a steady rate. For example, the consumer price index, which tracks the average cost of goods and services, soared 6% over the past year. So if you factored in a rate of 2% when calculating your coverage, the

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