Personal Finance

What impact does inflation have on your insurance policies? 

New York Life | December 18, 2023

Inflation is having an impact on many aspects of life. As prices have gone up, and the purchasing power of money has gone down, the consequences to both the economy and individuals are far-reaching.

One area of financial life many people are concerned about is the impact of inflation on insurance. You might be concerned, for example, that your premiums will go up. 

While none of us can control periods of high inflation, becoming more informed can help you deal with uncertainty, and make choices accordingly in turbulent financial times.

What are the drivers behind inflation?  

Different factors have been driving up inflation.

The two main types of drivers are “demand-pull” and “cost-push.” Recently, two major factors – one of each type – have had an impact on many economies around the world.

Demand-pull happens when there are too many dollars around for the goods available – demand is too high for supply. This occurred after the COVID-19 pandemic – a combination of held-back spending being released (people couldn’t spend normally during lockdowns) and a shortage of certain parts/supply issues due to factory closures during lockdowns (for example, in China). 

Meanwhile, cost-push factors are also having an impact. The Russian invasion of Ukraine has created an energy shortage, leading to an increase in the cost of utilities. It has also led to increases in the cost of food. This has led to “cost-push” inflation.   

Which policy is the best bet?

One of the helpful steps you can take in times of inflation is to carefully consider your financial products and services, such as your insurance policies. Knowing you have options is useful, as flexibility can mitigate high inflation.

The impact of inflation on the insurance industry means that some providers may have cut back on the range of products they offer. Some providers are also facing rising property claims costs (as goods now cost more) and rising operating costs. These pressures may then lead to rising premiums.

Check the details of your policy and find out whether your insurance costs are fixed, or whether they may rise.

New York Life offers different insurance options, so you can choose the path that is right for you. Whole Life and Term Life are the most common types of life insurance. Both have different benefits.

Whole Life insurance is a way to secure lifetime protection. Premiums are guaranteed never to increase. This gives the advantage of being able to budget accurately. In times of uncertainty, such as times of high inflation, many people want this security. New York Life Whole Life policy owners are eligible to receive dividends. Though dividends are not guaranteed, New York Life has been paying them to policy owners every year since 1854. 

However, if you want more flexibility, Term Life is a way to get temporary coverage that allows you to convert to long-term coverage later. With Term Life, you can choose exactly how long you will be covered, perhaps matching coverage length to a milestone such as paying off a mortgage. You can lock in premiums that are guaranteed to stay the same for a selected period, or you can start with smaller premiums that increase every year. Starting with a small premium may suit people facing other increased costs right now.

When times are tight, some people might be tempted to cut back on insurance – but remember that by having it you are providing yourself with security and giving yourself a safety net.

What else is there an impact on?

It isn’t just the insurance industry where premiums have seen increases due to inflation. Retirement plans have been similarly hit. The Internal Revenue Service has also announced that contribution limits for tax-deferred retirement plans will be raised by 9.8 percent for 2023 because of inflation. For some, this means saving more for retirement could lower their income tax.

Another area where consumers have had to tackle increased costs being passed on to them is in the auto industry. Supply chain disruption has caused difficulty and delay with vehicle parts for many manufacturers.

And once again, in grocery stores and with day-to-day purchases, consumers are facing rising costs due to inflation.

Making sound financial choices in such turbulent times is a question of balancing needs and costs, and deciding what works for you based on your individual circumstances.

High inflation rates can create some financial difficulties, for both individuals and the overall economy. At New York Life we are committed to providing useful information to help navigate every situation we can. If you need further insurance and financial guidance in this time of high inflation, connect with one of our financial professionals.

This article was originally published on December 7, 2022.


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Media contact

Kevin Maher
New York Life Insurance Company
(212) 576-7937