Guard Against the Inflation Grinch

Jan 11, 2018Kirk Johnston

Inflation comes in like a thief slowly sneaking up on you by increasing each year 3 to 4 percent. At first, you may not notice it too much, but when you look back you see the dramatic rise in the cost of things.

Inflation and the increase in consumer goods
In 1994, I could purchase a postage stamp for 29 cents. Today, that same stamp costs me 49 cents. Much of this increase can be attributed to inflation.

Unfortunately, it’s not just limited to stamps. Prices of all consumer goods tend to rise over time, meaning more hard-earned dollars go to purchase goods in the future.

Inflation and life insurance purchasing power
How does inflation affect your life insurance purchasing power when you are trying to plan for protection needed in the future?

For example, I once worked on a case for Maria, a 45-year-old mother of twins who were 5 years old. Maria enjoyed a successful career as a nurse practitioner. Maria’s agent helped determine that Maria needed $750,000 of life insurance to cover her needs today.

Factoring in a 3 percent average annual inflation rate, that $750,000 in 20 years would have the purchasing power of $415,257. Assuming a 4 percent annual inflation rate, the purchasing power decreases to $342,290. Both amounts are well below what Maria needs to replace her income to cover future expenses.

The impact of inflation over 20 years

Amount required for equivalent purchasing power
Year 3 percent inflation 4 percent inflation Consumer Price Index inflation (1997-2017)* Maria’s Term 20 Plus
death benefit
1 $750,000 $750,000 $750,000 $1,500,000
20 $1,354,583 $1,643,342 $1,145,522 $1,500,000


The table above shows the impact of inflation over 20 years. To combat inflation, Maria purchased a $1.5 million 20-year term life insurance policy. If needed in 20 years, this amount should help combat the Inflation Grinch.

Guard against inflation
Don’t forget to guard against inflation when you are purchasing insurance.

Material provided by Ohio National Financial Services, Karl Kreunen, CLU, Vice President, Life Product Marketing

*Source for Consumer Price Index calculation:

Term life insurance products are issued by and guarantees based on the claims-paying ability of Ohio National Life Assurance Corporation. Term Life Insurance Policy Form 92-TR-1 and any state variations.

Premiums are based on the age of the insured at nearest birthday and specified underwriting classification and is subject to change without notice. Premiums for issued policies may be different than a quote premium based upon actual underwriting classification. The premium stated in the policy is guaranteed to remain level for the term of the policy. The policy includes certain limitations during the first two policy years.

Product, product features and rider availability vary by state.  Issuer not licensed to conduct business in New York.

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