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European Insurance and Occupational Pensions Authority

How do inflation and the rise in interest rates affect your insurance?

What is inflation?

Inflation is a general increase in the price of goods and services over a period of time. Put simply, you can buy less today than you could yesterday with the same amount of money.

To control inflation, central banks increase the interest rates they charge on loans to commercial banks. Commercial banks then pass on these higher rates to their clients.

what is inflation
What does inflation mean for your insurance policy?

Inflation may impact your financial situation and reduce your purchasing power now and in the long term.

Take time to consider your options before taking important decisions on your insurance products (e.g.: temporarily stop paying your regular premium life insurance product, not renewing an insurance product or terminating your insurance-based investment product early), because these decisions can also impact your financial situation now and in the future.

It is important to have an overview of the insurance policies you have and of what do they cover, before making decisions on them. Bear in mind that the price of the insurance product is not necessarily the most important factor.

Consider seeking help/advice. Indeed, seeking advice on your insurance product can help you to consider your current and future needs and the potential consequences of a decision (e.g. penalty fees for ending an investment early, no adequate insurance coverage for your home/car).

How could inflation affect your life insurance product?

Inflation may mean your investments are less profitable for you.

It can lead to you having less disposable income now or in the future based on the returns on your investments.

If you decide to surrender your life insurance early or temporarily stop paying into a regular premium or savings product, because of your immediate financial needs, you may have to pay penalty fees and may have less income or savings in retirement or later in life.

If you own non-life insurance products such as home or car insurance, how could inflation impact those products?

Inflation may affect your insurance costs (your premiums), your coverage and the pay-out you receive for a successful claim.

For example, from one year to another, your car insurance premium can significantly increase, due to the rise in the cost of car repairs.

In some cases, inflation could have a direct impact on whether the compensation for any losses covered by your policy is sufficient for your needs. Take home insurance as an example. After a claim, the pay-out from your policy might not be sufficient to cover the cost of materials for repairs or rebuilding all or parts of your home.

3 steps you can take to deal with the impact of inflation and rising interest rates on your insurance products and private pensions

step 1
Avoid taking hasty decisions

For all types of insurance products, avoid taking hasty decisions.

Be wary of letting a period of rising prices dictate your decisions on whether to take out essential insurance products, such as home insurance. Sometimes, the consequence of not doing so can lead to riskier outcomes than you might have foreseen.

Do not just compare prices, also compare coverage. Find the right policy for your needs.

Keep in mind that before taking an important decision on your insurance products, you can seek advice from your financial advisor.

step 2
Adopt a long-term perspective

For life insurance products, adopt a long-term perspective.

You should not look only at the short-term impact of high inflation, but consider that in the long-term the situation will change.

It is important to keep in mind that a life insurance policy that is an insurance-based investment product is normally bought with a perspective of investing for a medium to long term period.

step 3
Adapt your coverage for non-life products

If you need to save money, rather than deciding not to renew an existing policy, you could consider:

  • Only choose the most essential coverage.
  • Increase the rate of the policy excess (this is the amount of money you agree to pay towards the overall cost of any claim).

Check if you are already covered for the same risk under a different policy (including credit cards).

To learn more, download our factsheet in all EU languages. It includes information on insurance, as well as on the financial products and services that consumers currently hold or plan to buy, such as loans, savings, financial investments, insurance and pensions.

Go to the factsheet