Due to increasing cost of goods and services overtime, more commonly known as inflation, your life insurance policy may not hold the same value in the future.
For many people, inflation is not a concern when it comes to life insurance. This is because many applicants choose a policy with the intention of it paying off their outstanding mortgage balance if they were to pass away unexpectedly. As mortgage balances generally go down overtime, inflation will be unlikely to have a significant negative impact on the intention of the policy. As premiums stay the same throughout the term of your life insurance policy, your monthly premiums will also feel cheaper as the years go on, as wages generally increase overtime.
However, there is a way to combat the impact of inflation and protect your life insurance policy from long-term economic forces. When applying for a policy you will be given the option to add indexation. Indexation simply turns your policy into an increasing life insurance policy, and as such is sometimes referred to as increasing life insurance. This means that your cover amount increases each year to keep in line with inflation, although it’s important to note that your premiums will increase to reflect this. Increasing policies can help to allow your life insurance to maintain its value over time and can be particularly effective if you are looking to protect your loved one’s quality of life or provide a significant financial gift, rather than simply cover the mortgage balance.