Three Ways Life Insurance Can Protect You from Inflation

Inflation means the prices of everyday things—like food, housing, transportation, and healthcare—increase over time. This reduces the purchasing power of your money and can affect your family’s standard of living. Permanent life insurance can be a powerful tool to help protect your finances against these rising costs.

What Type of Life Insurance Helps With Inflation?

Permanent life insurance provides lifelong coverage and builds cash value over time. Unlike term life insurance, which only covers a specific period, permanent policies can grow in value and death benefit, helping your family maintain financial security despite inflation.

Main types of permanent life insurance:

Whole Life Insurance
- Provides a guaranteed death benefit and builds cash value.
- Participating whole life policies pay dividends, which can buy Paid-Up Additions (PUAs)—small increments of additional insurance that increase both death benefit and cash value.
Universal Life Insurance (UL)
- Flexible premiums and death benefits.
- Option to choose a level death benefit or an increasing death benefit to keep up with inflation.

There are three main ways permanent life insurance can protect you against inflation.

1. Inflation Protection through Increasing Death Benefit Option in Universal Life Policies

How it works: Your death benefit can grow over time to match inflation.

Example (2% inflation):

Scenario	Initial Death Benefit	Value in 5 Years	Value in 5 Years in Today’s Dollars
Level Benefit	$500,000	$500,000	$452,000
Increasing Benefit	$500,000	$552,000	$500,000

By choosing an increasing death benefit, your coverage keeps pace with inflation, preserving purchasing power for your family.

How it works: Dividends from a participating whole life policy can purchase Paid-Up Additions (PUAs), increasing both death benefit and cash value over time.

Example (2% inflation, PUAs $12,000/year):

Year	Additional Death Benefit (PUAs)	Total Death Benefit (with PUA)	Value in Today’s Dollars	Total Death Benefit (without PUA)
1	$12,000	$512,000	~$502,000	~$490,000
2	$12,000	$524,000	~$504,000	~$481,000
3	$12,000	$536,000	~$506,000	~$471,000
4	$12,000	$548,000	~$508,000	~$462,000
5	$12,000	$560,000	~$507,000	~$452,000

With 2% inflation, the original $500,000 loses value to $452,000 in today’s dollars. PUAs grow your policy above this, effectively protecting your family against inflation.

3. Inflation Protection through Accumulation Fund Growth

How it works: Both Universal Life and Whole Life policies accumulate cash value, which grows tax-deferred and can be accessed via withdrawals or loans.

Example (cash value $50,000 after 5 years, 2% inflation):

Inflation reduces the purchasing power of money by roughly 10% over 5 years.
The $50,000 cash value can be used to cover higher living costs, helping maintain financial stability.