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With the rising costs of everyday products, services, and housing, many individuals and families are feeling the effects of inflation. While you might be finding yourself paying more to do and buy necessities, have you calculated the potential impact of inflation on your long-term financial future? An inflation rider could come in handy, and so could funeral insurance.
Life insurance and funeral policies are instrumental in many people's retirement plans and end-of-life expenses. However, even if you don't intend to withdraw funds or take a loan from your policy, the dollar amount of your coverage could change drastically as inflation moves up and down. Adding a rider to your funeral policy to cover for inflation’s movements can offset some of the effects on your family's future finances.
Here’s more about funeral insurance and inflation riders, as shared by Insurdinary.
Before learning about a rider for inflation impact on your funeral insurance, let’s look at funeral insurance itself. In simple terms, funeral or burial insurance falls under the category of life insurance since it pays out your benefits when you die.
However, unlike traditional life insurance that often have substantial death benefits to claim, general funeral insurance policies have only modest coverage, often from $1,000 to $25,000. Though some plans offer higher death benefits, the coverage amount still isn't as high as a typical policy. That includes policy extras, like inflation insurance.
Funeral insurance gets its name because the payouts cover a deceased person's final expenses. For instance, if you take out a burial policy for $10,000, your family can use those funds to pay for your medical expenses, funeral, and other end-of-life costs.
The money the policy pays out to your beneficiaries belongs to them, so they keep what they don't use.
Sometimes, people who get funeral insurance prefer to answer a few questions about their health, lifestyle, and occupation in place of undergoing a medical examination. This is simplified issue insurance. Guaranteed issue funeral insurance also doesn't require medical underwriting, so most insurance companies don't require you to undergo a medical exam or any sort of health assessment.
Almost anyone can apply and receive guaranteed issue life insurance with instant approval. Since insurance agencies don't require medical underwriting for these policies, the companies also don't know the health status of their guaranteed issue policyholders. As this is a high-risk move on the part of the insurer who approves these funeral insurance applicants, they sell policies with higher monthly premiums.
Still, although premiums for guaranteed issue burial insurance are higher than a traditional life insurance policy, many people rely on this lenient funeral insurance. It creates more options for people who would otherwise be ineligible to receive traditional life insurance, such as
Some insurance companies offer policy customizations through insurance riders. For guaranteed issue funeral insurance, you may consider adding an inflation rider to protect your modest coverage amount.
The rider will adjust your plan's coverage amount to accommodate rising costs. The increase occurs each year, with the insurance company determining the annual percentage for the adjustment. They’ll impose caps on the total adjustment amount.
Unfortunately, as a dynamic variable in this equation, inflation can degrade your funeral policy's value. Are the death benefits going to your beneficiaries going to be worth less after you die than when you bought the policy?
If you opt for a rider for inflation on your funeral policy, you won't have to worry. Your inflation rider protects that amount and accommodates rising costs by adding more to the face value of your coverage.
While it’s a great idea for protecting your policy, you should also be aware that any rider you add to your life insurance policy will increase how much you have to pay in monthly premiums.
The premium amount for guaranteed issue funeral insurance might be expensive against traditional insurance with medical underwriting, but the cost of inflation-sensitive insurance is relatively small. If you add a “cost-of-living rider” to your insurance, your death benefit will slowly increase over time. Your policy terms will determine the rate and frequency at which this coverage grows.
For instance, your insurance company might increase your policy's value by 4% of its initial face value every five years. The cap for inflation adjustments is usually 25% to 30% of the policy's initial value. As such, your beneficiaries could potentially receive up to 30% more in death benefits than your original policy amount intended to cover, which would ensure they have sufficient funds to cover your funeral and more despite the rising cost of living.
Additionally, inflation-based insurance riders are not available for all life insurance policies but typically attach to funeral, term life, and long-term care policies. These different options could be available:
When determining percentage rates and rate-increase schedules, many insurance agencies use the consumer price index, which outlines the price fluctuations of goods and services as a basket. Globally, the CPI is a reliable source for measuring inflation.
So, should you consider adding a rider for inflation to your policies, including the funeral coverage you’ve taken out? Here are some pros and cons to consider before you decide.
The biggest benefit of a cost-of-living rider is the protection it gives to the face value of your funeral insurance policy. The financial protection pads the death benefit, even to the extent that your beneficiaries could get more when you pass away. If you happen to need extensive end-of-life expenses, this could be helpful.
The lack of medical exams is another advantage of having an inflation rider for your burial insurance policy. With guaranteed and simplified issue policies, you won't have to visit a doctor or schedule a nurse to come to your home to conduct a physical medical assessment with blood and urine samples. Instead, you might have to answer a questionnaire about your health status and habits.
Some insurance companies also allow automatic adjustments, a beneficial option if you don't want to reapply for benefits.
As with any insurance rider, inflation riders for funeral and life insurance policies aren't for everyone. The potential drawbacks include the following:
The amount you pay for inflation protection depends on multiple factors, such as:
You must speak with your insurance provider to get more information about the exact cost and how the rider will influence your monthly burial insurance premiums.
An inflation rider on your funeral insurance can give anyone peace of mind about their family's financial future. Consider buying the rider if you're worried about inflation decreasing your policy's face value.
You should also consider a rider if you're married and want your spouse to have a comfortable retirement.
With inflationary adjustment clauses on your funeral life insurance policy, you can protect your loved ones' financial health when you pass away. These riders will likely increase your monthly insurance premiums but boost the face value of your policy to accommodate inflation. Whether you're an aging adult who wants to ensure your family has enough to take care of your end-of-life expenses or a young couple starting a family, a larger death benefit is beneficial.
If you aren’t sure, chat with an experienced life insurance agent before adding riders to your policy. Comparison tools like Insurdinary's help you find guaranteed issue funeral insurance with the option to add an inflation rider and more.
As experts who work with the country's top insurance companies, Insurdinary takes the guesswork out of finding affordable insurance products. You’ll get the best quotes from multiple insurance agencies and great advice on funeral insurance, inflation riders, and more. Contact Insurdinary via our convenient quote form and start comparing life insurance quotes today.