iQuanti: The death benefit from a term life insurance policy can help your 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 much less in the future. If so, your loved ones might not get all the financial benefits you wanted.
Fortunately, adding an inflation rider to your policy can protect against this and ensure you get all the benefits. This article will discuss the dangers that inflation can pose to your term life insurance policy and explain how an inflation rider can protect you against these risks.
What is Inflation?
Inflation is the process by which your dollar loses value over time. It is usually measured by the consumer price index (CPI), which averages 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 much less in the future if you die while your policy is in force.
What is an inflation jumper?
Riders are optional features you can add to your policy to increase coverage or gain additional benefits. In exchange, you can pay higher premiums. An inflation rider allows you to protect your death benefit against inflation by increasing the death benefit by a fixed percentage each year.
Inflation riders can work for any policyholder, but can be especially effective for younger, healthier people. They can ensure that the death benefit retains its value over the long term.
How do inflation jumpers work?
When you add an inflation rider to your policy, the insurer will automatically increase your death benefit by an agreed percentage each year. In many cases, you can choose how much you want the death benefit to increase, up to a certain limit. For example, during a drop in inflation, you might accept a 3% increase. However, when inflation is at its peak, you can opt for a higher amount. The highest offer from insurers is usually 5%.
This is compounded annually. For example, if you have a
The higher your purchase percentage, the higher your premiums will increase. However, it may be worth the cost during times of high inflation.
Protect your policy against inflation
Inflation can erode the value of your death benefit, but you can lessen its effects by purchasing an inflation rider. Your premiums may increase slightly, but you can rest assured that you’ll protect your loved ones financially by protecting the death benefit against inflation.
That said, be sure to shop around with multiple 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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