The general rise in product and service prices in a suitable base year is called inflation. The consumer price index (CPI), which determines the percentage change in the price of goods and services that households typically use, is used to measure inflation. The lives of people are significantly impacted by all of this, including life insurance policies. Let's examine how inflation affects your life insurance needs and how to choose the best plan.
How does Inflation Affect Life Insurance Policies?
Inflation decides the value of money. Term life insurance premiums are typically paid out over 15, 20, or 30 years. By definition, the price you pay for term life insurance is typically a fixed price you pay over this period. As a result, the rupee value declines by this amount each year because the inflation rate is typically 7 to 9% annually.
This implies that the rupee's purchasing power has decreased and that it can no longer buy the same amount of coverage benefit in terms of money as it did the previous year. In terms of rupees, the monthly premium you pay for life insurance today will remain the same but, due to inflation, will be less in 10 years.
Time Factor of Inflation on Term Insurance Policies
A term plan for which you pay a yearly fixed rate. If inflation rates continue to be between 7% and 9% on average, your money's value will decline by this amount annually. In other words, the cost of your fixed-interest term insurance is decreasing every year.
The Solution
By buying Increasing Term Insurance policies, you can raise the amount guaranteed by your term plan. A plan like this hedges your money by raising premiums by 5%–10% annually. Insurance companies may offer enticing riders, incentives for leading a healthy lifestyle, and special discounts for women to sweeten the deal.
Increasing term life insurance is very effective. Throughout the policy, your coverage will increase, frequently concurrently with your premium rates. Let's look at an illustration.
When he was 29, Mr Rajesh bought an increasing term insurance policy. His preferred sum guaranteed is INR 10 lakhs for a 30-year policy term. Up to a maximum increase of 100% of the chosen sum assured amount, the plan offers a 5% annual growth in the sum assured amount.
Benefits of Buying an Increasing Term Insurance Plan
An increasing term insurance plan has many advantages. Let us take a look at a few of them.
- Good in Inflation: We are aware that inflation increases gradually every year. Consequently, it is crucial to have an insurance strategy that is effective against it. The increasing amount guaranteed by an expanding term insurance plan pays for the escalating costs over time. Even without you, your family will be adequately protected in the future.
- Cost-Efficient: about affordability. You keep in mind the rise in term insurance premiums. Since most insurers charge the same premium throughout the policy's life, there is no long-term strain on your finances.
- No Additional Underwriting: You can expand your coverage without reapplying for term insurance.
Conclusion
Inflation is a big worry for many, but if you understand the risks and benefits of an increasing term life insurance policy, you can make the best decision. This might be a good option for you if you are worried about the rise in inflation and are buying a policy relatively early in life, like right after starting a family.
FAQs
Q. How to buy an increasing term life insurance policy?
A. By going to the official websites of various insurance companies, you can purchase an increasing term insurance plan online or buy from RenewBuy.
Q. Is it a good idea to increase term life insurance?
A. If you want your coverage to keep up with anticipated increases in your income or expenses, increasing the term might be a good fit. The increased term also safeguards your future financial investment, which is important given that inflation is a constant concern for long-term coverage.
Q. Can more than one claim be considered?
A. Multiple claims from various insurers may be considered as long as their specifics were disclosed when the policy was purchased.