Articles 536 views October 22, 2021

Thanks to the growing advertisements demonstrating how insurance helps tackle unfortunate circumstances such as the death of a family’s breadwinner or an expensive hospitalization, a lot of us are finally waking up to this financial product. However, most fail to estimate correctly the effect of inflation on their finances when choosing an insurance product. As a result, the amount given in case of untoward incidents remains far too little in terms of inflation. To avoid such circumstances, one should ideally read word-to-word about various life and health insurances and pick the one that accommodates inflation the best way. That said, you could miss out on critical information when reading lengthy policy documents. We understand the same and so have put here a list of things to do when choosing insurances. Let’s proceed further!

Approaches to Selecting Insurance Products Based on Inflation

Assessing correctly how inflation trajectory would remain year after year is the key to achieving financial security with insurance. But, how will you do it successfully given that a lot of factors weigh in on inflation? So, check your current expenses, add 5-7% to the same every year and plan insurances accordingly. Insurances picked based on the same will most likely help meet the demand later. An elaboration on the same would only help you select better.

Let’s Start with Term Insurance Tactics

Term insurance helps your family members maintain their lifestyle even when you’re not around to ensure so. Upon your death, the nominee chosen by you at policy inception will receive a lump sum amount (Sum Assured). Here, you could be smart and choose a plan having an impressive increasing life cover. It implies an increase in the cover amount periodically by a certain percentage. Such things are not available when choosing the level cover option that gives your family the fixed amount as promised at inception. Most increasing term insurance covers come with a 5-6% increase in the sum assured every year till it reaches the threshold as set in the policy. The threshold for most policies is up to 100% of the original sum assured.

Let’s Plan Health Insurance This Way to Beat Inflation

Health insurance, which protects you financially against numerous health hazards, comes in several variants. There are individual and family floater plans covered under comprehensive health insurance. Whereas you could either buy a dedicated plan for critical illnesses or have these added as a rider to your base health insurance plan.

If the expenses for a particular disease now stand at INR 3 lakh, the same will be around INR 7-10 lakh a decade later courtesy inflation. Accordingly, you should choose the plan. You can respond to inflation even better when utilizing the no claim bonus (NCB). So, when you don’t claim in a policy year, the insurance company will credit the NCB to your account by which the sum insured (coverage amount) will rise by a certain percentage on renewal without any extra premium payment. However, if the NCB is available as an add-on cover, you will need to pay extra. Usually, the NCB remains around 5-20% on average and can go up to 100% of the original sum insured.

Some Health Insurance Plans Come with Inflation-based Riders

Very briefly under the above subheading, we hinted about a rider that you can add to your base plan to get additional coverage. Health insurance companies these days are offering inflation riders by which the coverage amount of the base policy rises on renewal in line with the inflation rate in the previous year. These riders are designed keeping in mind the rise in the Consumer Price Index (CPI), a tool used by the Ministry of Statistics, Government of India, to gauge inflation. Care Health Insurance with Care Shield and Niva Bupa Health Insurance with Safeguard riders are an example in that regard.

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