At the time of writing, the inflation rate in the US is at 9.1%, per data released by the US Labor Department. To that end, a lot can change with insurance needs in a year, especially with inflation, where the cost of everything from products to services increases. Therefore, it’s essential for every insured personnel and business to inflation guard their insurance needs.
Since insurance is usually a long-term association where the insured pays a series of premiums to the insurer for a potentially long period of coverage and significant future returns (subject to conditions), inflation ought to be one of the serious concerns of any would-be insurance buyer and those already insured.
Thus, keeping in line with the current economic situation and high inflation, it’s essential to understand how inflation impacts insurance premiums. Let’s discuss that in this article.
How Does Inflation Impact Insurance Premiums?
“The highest inflation in 40 years is weighing heavily on millions of households,” reads a statement from a recent CBS News article on raging inflation in the US and how it’s drastically affecting the citizens – especially those that “don’t earn enough.”
It’s noteworthy then that the insurance premiums are determined, keeping in mind the industry trends. The company focuses on factors like the cost to repair a car or, in general, the cost of recovery in case of a mishappening. Basically, their main focus is the cost. If the increase in cost is expected, the insurance premium is likely to move the same.
Insurance companies are affected by inflation because the renewal of the same number of exposures in future years generates a higher premium. Various insurance policies have built-in inflation guards. Also, the inflation index rate is considered when someone purchases insurance.
Impact of Inflation on Personal Insurance
Personal insurance covers the insured and the family in case of a loss or injury caused by accident, medical care, and various other personal risks. Due to the rise in inflation, it can happen that beneficiaries don’t get much coverage. Lately, since the inflation rate has been soaring high, the purchasing power of a dollar is getting weak.
But at the same time, it’s noteworthy that personal insurance is indirectly impacted by inflation. Personal insurers are less impacted by the claims as many policies have fixed payout. An economy with an increasing inflation graph highlights that it defaults to justify the current expenditure on future fixed payments.
Impact of Inflation on Commercial Insurance
Commercial Insurance is highly and directly impacted by inflation as here we are talking about commercial properties. The cost involved to repair, rebuild or make the property is inflated alongside inflation. With the building materials price hike, insurers expect relatively inferior underwriting results.
How to Minimize the Impact
Inflation will fluctuate; it is not a fixed situation anywhere. One needs to get updated with the inflation situation before applying for insurance policies. Here’s how:
1. Early Purchase
Get your renewal process early with the help of the insurance agent. The insurance agency will help you understand the current inflation trends and their impact on the policy. An insured should conduct quarterly book meetings with the insurance broker to adjust the coverage to current market conditions.
Long-term care insurance comes with insurance inflation protection. LTC policies are purchased for multiple years before being drawn upon. The medical costs in the near future may exceed the policy benefit, and insurance inflation protection is done to protect the policy from such a scenario. It is an additional feature added to the policy. With this feature, the benefits paid are adjusted with the upward inflation.
While reading the terms and conditions in the policy, pay extra attention to the exclusions and deductibles. An insured should assess their policy limits and analyze if the amount can settle with the loss. If, after analysis, the insured finds the underinsurance issues, then they can ask the team to update the policy. It is also the insurance company’s responsibility to make the insured aware of all the inclusions and exclusions of the insurance policies.
Inflation can hit the market multiple times. With the rise in the price of products and services, it can get challenging to manage insurance policies as the inflation umbrella affects almost everything.
As such, you will have to seek advice from an insurance company that will always back you up in situations. After all, a bit of guidance before committing to an insurance policy can save you a lot of hassle later on.
At Gonzalez Insurance, we are happy to help you with this. We are dedicated to making sure our insurance solutions fit your needs, enabling you to get the most out of your insurance policies.