Do life insurance policies generally adjust for inflation? If I want my policy to adjust for inflation is there an additional cost?
Answers | 1
Other option, purchase Universal Life with option B (increasing face amount). It costs more than term, and the "inflation rider" concept is there since the face amount increases each year, but while this is a way to get it done, it isn't ideal. UL costs more, and the increase each year is more than inflationary increases in our economy may be.
Lastly, consider this. If you own a home and you are paying it off, the amount of death benefit in your policy is fixed (with term). As the amount at risk on the mortgage goes down, that leaves more of the face amount uncommitted to debt. Example: you owe
$200,000 today and you have $200,000 in life insurance. Ten years from now you owe $100,000 and you still have $200,000 in life insurance. See how in ten years, you have surplus coverage that is not aimed at mortgage debt - as it was 10 years ago? There is your inflation adjustment (as long as you don't add more debt, that is).