The following chart is provided to show the impact of 3% inflation on a level face amount policy over a period up to 35 years.
For example, if a 30 year old bought a 500,000 policy today, and kept it for 30 years, the relative value of that policy, in today's money, would be $205,993 by the end of 30 years.
In other words, any level policy is really a decreasing policy in an inflationary economy. Even when inflation is as low as 3%, policy values drop significantly over a person's insurance buying lifetime.
IMPORTANT: Remember that the relative value of the premiums is also dropping. A 30 year old non-smoker in preferred good health can buy a $500,000 30 year term policy for about $50 per month. While the relative value of the $500,000 will be about $205,993 by the end of 30 years, the $50 per month premium will be equivalent to about $21 in today's money. While inflation shrinks the the face amount of your policy, it is also shrinking the value of the premium you pay.
SUMMARY: This reinforces that buying a level term plan, that covers you to the point you plan to retire, is a good strategy. It takes into account inflation and the fact that your needs for insurance will go down as you approach retirement.
|Values Based Upon 3% Inflation|
|Year||Face Amount of Level Policy||Relative Value by end of year|