iQuanti: A term life insurance policy’s death benefit can help loved ones replace your income and pay off your debts if you die unexpectedly. However, with inflation at multi-decade highs, that death benefit could be worth a lot less in the future. If so, your loved ones may not get the full financial benefits you intended.
Fortunately, adding an inflation rider to your policy can guard against this and ensure you get the full benefits. This article will discuss the dangers inflation can pose to your level term life insurance policy and explain how an inflation rider can protect you against those risks.
What is inflation?
Inflation is the process of your dollar losing value as time passes. It’s usually measured by the Consumer Price Index (CPI), which averages out the price of various common goods and services. Some level of inflation is normal, but currently, inflation is extremely high. This can make your death benefit worth a lot less in the future if you pass away while your policy is in force.
What is an inflation rider?
Riders are optional features you can add to your policy to increase coverage or gain extra benefits. In exchange, you may pay higher premiums. An inflation rider lets you protect your death benefit against inflation by increasing the death benefit at a fixed percentage every year.
Inflation riders can work for any policyholder but can be especially effective for younger and healthier individuals. They can ensure the death benefit maintains its value for the long term.
How do inflation riders work?
When you add an inflation rider to your policy, the insurer will increase your death benefit automatically by an agreed-upon percentage each year. In many cases, you can choose how much you want the death benefit to increase, within a certain limit. For instance, during lower inflation, you might agree to a 3% increase. However, when inflation’s running hot, you might opt for a higher amount. The highest insurers typically offer is 5%.
This compounds annually. For instance, if you have a
The higher percentage you purchase, the more your premiums will increase. However, this can be worth the cost during periods of high inflation.
Safeguard your policy against inflation
Inflation can erode the value of your death benefit, but you can mitigate its effects by purchasing an inflation rider. Your premiums may increase slightly, but you can rest assured that you will protect your loved ones financially by safeguarding the death benefit against inflation.
That said, make sure to shop around with several insurers to find the best inflation coverage at the lowest rates. This will help you maximize your death benefit while keeping costs low.
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