How Tariffs May Impact the Life Insurance Industry—And How to Hedge Against It

Understanding the Impact of Tariffs on the Financial & Insurance Industry

In today’s global economy, tariffs—essentially taxes on imported goods—can have widespread effects beyond just the cost of consumer products. While tariffs are often used as tools to protect domestic industries, they also create ripple effects across financial markets, interest rates, and economic stability. But what does this mean for the life insurance industry and those who rely on financial products to protect and grow their wealth?

The short answer: Tariffs can indirectly affect the life insurance industry by influencing inflation, interest rates, and overall market volatility. For insurance professionals and policyholders alike, understanding these dynamics is crucial to making informed financial decisions.

How Tariffs Can Impact Life Insurance

1. Higher Inflation & Increased Cost of Living

When tariffs are imposed, the cost of imported goods rises. In many cases, businesses pass these costs onto consumers, leading to higher inflation. When inflation rises, so do the costs of everyday expenses, making it more difficult for families and individuals to maintain financial security.

Impact on Life Insurance:

• Policyholders may struggle to afford premiums as other expenses rise.
• Inflation can erode the value of fixed-benefit policies, meaning a $500,000 death benefit today may have significantly less purchasing power in the future.

2. Rising Interest Rates Affecting Policy Growth

Tariffs can also lead to shifts in interest rates, as central banks adjust policies to stabilize the economy. Higher interest rates can affect certain life insurance products, especially those tied to market performance.

Impact on Life Insurance:

• Whole Life & Universal Life Policies: Policies with cash value components may see changes in returns based on interest rate fluctuations.
• Indexed Universal Life (IUL) Policies: Since these policies are tied to market indexes, volatility from tariff-related economic uncertainty could impact credited interest rates.
• Annuities: Fixed annuities may offer better rates when interest rates rise, but variable annuities may experience more market volatility.

3. Stock Market Volatility & Economic Uncertainty

Trade wars and tariffs often create market instability, as investors react to economic uncertainty. For life insurers, whose assets are heavily invested in bonds and equities, this can impact their ability to generate returns and remain financially strong.

Impact on Life Insurance:

• Insurance carriers may adjust pricing models, potentially leading to higher premiums.
• Fluctuations in cash value growth for certain policyholders invested in market-linked products.
• Increased underwriting scrutiny as insurers assess economic risk.

How to Hedge Against the Impact of Tariffs on Financial Security

While tariffs and their economic effects may be out of our control, there are ways to hedge against these uncertainties using strategic life insurance products.

1. Lock in Guaranteed Benefits with Whole Life Insurance

A Whole Life Insurance policy provides fixed, guaranteed cash value growth and a guaranteed death benefit, making it a solid hedge against economic uncertainty. Unlike investment-based products, whole life policies remain unaffected by market fluctuations and provide stability even in times of high inflation or tariff-induced volatility.

2. Use Indexed Universal Life (IUL) for Growth & Protection

For those who want to hedge against economic uncertainty while still capturing growth potential, an Indexed Universal Life (IUL) policy can be a great option. IUL policies are tied to market indexes but also offer downside protection, ensuring that even if tariffs cause stock market disruptions, policyholders won’t experience negative returns.

? Benefits of IUL in a Tariff-Impacted Economy:

• Growth potential with downside protection.
• Ability to adjust premium payments based on economic conditions.
• Tax-advantaged cash value accumulation that can be accessed during inflationary periods.

3. Diversify with Fixed Indexed Annuities (FIA)

For those worried about retirement income and long-term stability, Fixed Indexed Annuities (FIAs) can be a powerful hedge against tariff-related economic fluctuations.

? Why FIAs Make Sense:

• Principal protection with the ability to earn interest linked to a market index.
• Guaranteed income options that are not affected by tariffs or stock market swings.
• Tax deferral benefits, allowing policyholders to grow their retirement funds without immediate tax implications.

4. Consider Laddering Life Insurance Policies

One effective strategy to combat economic uncertainty is laddering life insurance policies—a method where individuals hold multiple policies with different terms and structures.

? How It Works:

• A mix of term life, whole life, and an IUL policy can provide both short-term affordability and long-term financial security.
• If inflation rises due to tariffs, the whole life and IUL policies provide cash value that can be leveraged while the term policy offers cost-effective protection.
• This approach ensures liquidity, growth, and stability across different economic environments.

Final Thoughts: Staying Ahead of Economic Uncertainty

While tariffs and trade policies will continue to impact global economies, the key to financial security is preparation and diversification. Life insurance is more than just protection—it’s a powerful financial tool that, when structured correctly, can provide stability and opportunity even in uncertain times.

As financial professionals, it’s our responsibility to educate clients on ways to safeguard their financial future and hedge against economic volatility. By leveraging whole life, indexed universal life, and annuities, individuals can position themselves to thrive—no matter how tariffs and economic shifts unfold.

Have questions or want to explore how these strategies fit into your financial plan? Let’s connect!

Dr. David Smothers

Business Owner

Insurance Producer

Financial professional