The following chart is provided to show the impact of 3% inflation on a level face amount policy over a period up to 35 years.
For example, if a 30 year old bought a 500,000 policy today, and kept it for 30 years, the relative value of that policy, in today's money, would be $205,993 by the end of 30 years.
In other words, any level policy is really a decreasing policy in an inflationary economy. Even when inflation is as low as 3%, policy values drop significantly over a person's insurance buying lifetime.
IMPORTANT: Remember that the relative value of the premiums is also dropping. A 30 year old non-smoker in preferred good health can buy a $500,000 30 year term policy for about $50 per month. While the relative value of the $500,000 will be about $205,993 by the end of 30 years, the $50 per month premium will be equivalent to about $21 in today's money. While inflation shrinks the the face amount of your policy, it is also shrinking the value of the premium you pay.
SUMMARY: This reinforces that buying a level term plan, that covers you to the point you plan to retire, is a good strategy. It takes into account inflation and the fact that your needs for insurance will go down as you approach retirement.
Present
Value based upon 3% inflation
Year Face Amount Relative Value
of Level Policy by end of year
1 500,000.00 485,436.89
2 500,000.00 471,297.95
3 500,000.00 457,570.83
4 500,000.00 444,243.52
5 500,000.00 431,304.39
6 500,000.00 418,742.13
7 500,000.00 406,545.76
8 500,000.00 394,704.62
9 500,000.00 383,208.37
10 500,000.00 372,046.96
11 500,000.00 361,210.64
12 500,000.00 350,689.94
13 500,000.00 340,475.67
14 500,000.00 330,558.90
15 500,000.00 320,930.97
16 500,000.00 311,583.47
17 500,000.00 302,508.22
18 500,000.00 293,697.30
19 500,000.00 285,143.01
20 500,000.00 276,837.88
21 500,000.00 268,774.64
22 500,000.00 260,946.25
23 500,000.00 253,345.87
24 500,000.00 245,966.87
25 500,000.00 238,802.78
26 500,000.00 231,847.36
27 500,000.00 225,094.53
28 500,000.00 218,538.38
29 500,000.00 212,173.18
30 500,000.00 205,993.38
31 500,000.00 199,993.57
32 500,000.00 194,168.52
33 500,000.00 188,513.12
34 500,000.00 183,022.45
35 500,000.00 177,691.70