Here, Which? reveals the impact high inflation could have on policies taken out years ago, and offers advice on getting cover that can keep up with rising prices.
How could high inflation impact your payout?
High inflation over the past two years means prices have risen considerably, so if your policy wasn't taken out recently, it needs reviewing to make sure it still provides adequate support for loved ones after you die.
David Nottingham, protection expert at NFU Mutual, warns that £100,000 worth of cover taken out 10 years ago is worth a third of its original value in today's money, or half its original value for the same amount of cover bought 20 years ago.
Find out more:What do you need to check?
If you have a life insurance policy, double-check what sort of policy you have and whether the lump sum payout will be enough to support your family's needs.
Equally, Nottingham urges customers who have taken out critical illness cover to check it's still adequate. People usually take out these policies to pay for modifications to the home in the event of a serious illness or disability, and the cost of those improvements will have likely increased.
You should also review income protection policies if your outgoings such as mortgage payments, utility bills or childcare costs have increased.
Find out more:What can you do to keep up with rising prices?
To guard against rising prices, you can take out a policy with increasing cover. Some providers offer policies linked to inflation, while others offer a set increase each year.
A life insurance policy offering £100,000 worth of cover that increases by 5% annually, for example, will rise to £155,132 after 10 years and £252,695 after 20 years.
The downside is that your premium will likely also increase annually to reflect the boost in cover, but extra payments might feel worth it if it reduces the risk of being underinsured should you die unexpectedly.
Find out more:How much life insurance cover do you need?
First consider your debts, including mortgage, loans and credit cards.
Then think about other general expenses, such as utility bills and groceries. Don't forget other major costs that your family might need help with if you're gone – for those with children, for example, these could include school or university tuition fees, holidays, and extracurricular activities such as music lessons.
Everyone's circumstances are different, so you'll need to tailor the cover to fit your individual needs.
Depending on your situation, you might want to have more than one life insurance policy. For example, you might get a decreasing term policy to help your loved ones pay off a mortgage, and an increasing term policy to leave a lump sum for them to cope with other costs.
Once your policy is set up, make sure you review it regularly, especially if your life changes in any way – whether that's having another child or buying a new home. It’s normally fairly easy to amend your policy, but talk to your insurance provider to find out more.
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source https://www.which.co.uk/news/article/life-insurance-is-your-cover-still-enough-after-two-years-of-high-inflation-aGD4C9u99QtX