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Understanding Inflation’s Effect When Purchasing Life Insurance

Total U.S. life insurance premium increased 21% in the second quarter of 2021, the most significant year-over-year increase since the third quarter of 1987. Year to date (YTD), whole life premium was 22% higher than sales in the first six months of 2020. Whole life represented 36% of the U.S. life insurance market in the second quarter. (LIMRA, 09/2021).

In the early 1940s, a $3,500 death benefit life insurance policy at my Father’s age would cost approximately $94 dollars annually. The death benefit would have paid for four years of college. For the 2020-2021 academic year, the average price of tuition and fees came to:

  • $37,650 at private colleges.
  • $10,560 at public colleges (in-state residents)
  • $27,020 at public colleges (out-of-state residents)

While the process of inflation increases the cost of goods, the face amount of a life insurance policy generally does not increase. Therefore, as the average inflation rate from 1941-2021 was 3.73%, a person would need a $65,000 death benefit in 2021 to replace the $3,500 death benefit of 1941.

What would be the result of buying a $100,000 life policy in 1981 at age 40? By 2021, the inflation rate averaged 2.80% since 1981. Therefore, the cost of goods and services would require approximately $300,000 of death benefit to pay for what $100,000 would have cost 40 years ago.

The life insurance purchases and increases referenced in the first paragraph are not limited to inflation. For example, COVID-19 likely caused an increase in the awareness of mortality for many consumers, and such insecurity promotes the death benefit, premium, and cash value guarantees of whole life insurance.

The current inflation rate is 5.4% – the highest in 13 years. AIP Marketing Alliance’s team suggests that agents set up a life policy review with your clients to confirm the current death benefit of their life insurance still meets their life insurance goals and needs. At that time, you also can confirm that their named beneficiaries are up to date with the selected carrier.

If you need some life insurance policy review documents to help initiate the process with your clients, please contact AIP Marketing Alliance’s Business Development team at (800) 783-5206 Press #2 or send a message to marketing@aipma.com.


Considered accurate when published, but can change from time to time without notice.

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