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Inflation in Term vs Whole Life policies
Almost every article I have seen ignores inflation when discussing whether to buy term or permanent insurance. The argument usually ends like this: If your need for insurance is 30 years or less then the term is less expensive. But if you want insurance to cover you when you are most likely to die, age 70 to 100 than get permanent insurance.

Here is a true story that demonstrates how inflation effects life insurance. In 1935 my grandfather bought an whole life policy that promised to have $10,000 in cash value in 1970. While the premium was high and a sacrifice to make, $10,000 was a lot of money in 1935. You could buy a loaf of bread for 8 cents. It was a significant part of his retirement planning. When 1970 rolled around that same loaf of bread cost 58 cents. Even though inflation was low during most of that period the dollar lost about 85% of its value. His permanent insurance was worth $10,000 as promised but the $10,000 was worth only $1,500 in 1935 money. This was now a minor part of his retirement plan.

Now we are in 1970. My family bought new cars in 1970. A Chevy II Nova and a huge Cheverolet Brookwood station wagon. Combined cost the two cars was $5,000. Even with today's sales you would have a hard time finding two comparable cars for $50,000. As you can see there has been continued erosion in the value if the dollar. In fact, inflation is not so much prices going up as the value of the dollar going down.

Since Life insurance benefits are in dollars, inflation makes every policy decrease in real value with time. In the late 70s a $100,000 the most common amount of Term Life that we sold. In the 80s it was $250,000. In the 90s $ 500,000. And now it is common for people to ask for $1,000,000. We have many customers that have upped their insurance to compensate for inflation.

So next time you see an article showing a 26 year old buying permanent insurance an collecting his death benefit at 90 ask two things. What about inflation and how come the 26 year old is not getting the $1,000,000 policy he needs today?

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