How Does Inflation Impact Life Insurance and Retirements?

Inflation continues to be a significant concern impacting the cost of food, utilities, fuel, and other items. Over time, your money won’t be able to buy as much as it used to due to the impact of inflation. Inflation can also have a negative effect on your life insurance rates and retirement investments. Finding ways to protect them against inflation is key to saving money and keeping your retirement intact.

What is Inflation?

Inflation is when the price of goods and other items increases over time. The annual inflation rate for 2022 is 9.1%, a significant increase from the 4.7% yearly inflation rate in 2021. These rising costs are making it much more costly to purchase necessities while also creating plenty of challenges for anyone living on a budget. Typically, the inflation rate in the United States is around 3% each year, but the pandemic and numerous economic factors have significantly increased inflation throughout the country.

Protecting Your Money Against Inflation

Looking at ways to protect yourself from inflation is essential in today’s economic environment. Luckily, you can protect yourself against inflation in a variety of ways. Reviewing your spending habits and finding more ways to save money is key to keeping your costs to a minimum. Earning extra money can also help, whether it’s working at a side job or if you can get extra hours at work. Learning about your life insurance coverage details is also helpful in determining if you need to increase life insurance coverage or make any other changes to your policy.

Here are a few things to consider about life insurance coverage and inflation.


Sometimes a life insurance policy will link your premiums to different items impacted by inflation, such as the Average Earnings Index and the Retail Price Index. Indexation means that your policy is automatically adjusted with inflation. Usually, you can’t add this to an existing policy, as you will need to make this decision in advance.

Periodic Coverage Boosts

Including additional coverage on your existing life insurance coverage is one of the easiest ways to keep up with inflation. For example, a periodic coverage boost enables you to factor the inflation rate into your existing coverage based on your needs. You can even course-correct this figure in the future.

Policy Riders

A life insurance company will often offer policy riders an extra fee. A policy rider is a clause built into your policy that gives you additional protection against inflation. The benefit is increased each year to help keep pace with inflation. You must also add a policy rider before buying life insurance coverage.

Why You Need to Protect Your Life Insurance from Inflation

Adjusting your life insurance coverage for inflation is crucial to planning for the future. Learning about your policy details is essential in helping you combat inflation. Making a few changes to your policy can often save you money. Discussing your needs with an insurance agency can help you find the most affordable life insurance rates while making it easier to protect against inflation.

How Does Inflation Impact Retirement Investments?

Inflation doesn’t only impact life insurance rates, but it can also significantly impact your retirement investments. The impact of inflation over time reduces your purchasing power, which is why it’s important to make changes to your retirement investments to overcome these challenges.

Working with a financial advisor is often helpful in balancing your portfolio to ensure you are well-diversified. Shifting some of your assets to inflation-protected bonds or investing in commodities can help limit the impact of inflation. Delaying your Social Security payments is another option.  The monthly amount will increase each month you delay taking your payments all the way out to age 70.

Closing Thoughts

Inflation can often impact life insurance rates and whole life insurance policies. Finding ways to reduce the impact of inflation is essential, and a great way to hedge inflation may be selling an underperforming on unneeded life insurance policy in the form of a life settlement.  You would free up money that could be put in motion.  Putting money in motion is the idea that your tied up assets can be liquidated and reinvested into other investments. Discuss your options today with your financial advisor, or get a life insurance appraisal by reaching out to someone on our experienced team!