What happens to the demand for insurance protection when inflation increases?

When inflation increases, the purchasing power of money decreases, which means that people need more money to buy the same goods and services. In this context, the demand for insurance protection tends to decrease because the increased cost of living can make individuals more cautious with their spending. The higher costs of premiums may lead consumers to prioritize immediate expenses over insurance purchases, especially if they perceive that their financial resources are being eroded. As the value of money declines, individuals may also perceive that the benefits provided by insurance are not worth the higher premiums, thus further contributing to a decrease in demand.

Additionally, people might reassess their financial priorities, choosing to allocate funds towards essentials rather than potential future payouts from insurance policies. This shift in financial behavior reflects a typical response to inflationary pressures, where consumers tighten their budgets and reduce discretionary spending, which includes insurance products.