Why Should You Consider Inflation When Buying a Term Plan?

Why Should You Consider Inflation When Buying a Term Plan?
What Can Be Done?

A term insurance plan is one of the widely popular life insurance plans as they are cost-effective and an affordable insurance instrument to protect your family financially. These insurance plans offer financial protection to your loved ones during the time of an unforeseen emergency. Purchasing a term plan with sufficient coverage is important in order to offer financial stability to your family members. A term insurance plan that is bought without factoring in inflation could ultimately result in inadequate financial protection to your dependents in times of need.

Why Should You Consider Inflation When Buying a Term Plan?

Listed below are 3 reasons why inflation plays a significant factor when you plan on purchasing a term insurance plan:

Inflation Results in Decreased Buying Capacity

Due to the impact of inflation, there is a negative effect on the buying power of the consumer i.e. it decreases. By the time your insurance plan would come into action, the inflation rate would have risen up, thus letting you buy less for the same amount of money as you could have bought 10 years back. A term insurance policy that was bought 20 years ago by you would get exhausted quickly, thus leaving behind your dependents in a financially vulnerable position.

Rate of Inflation May Differ Based on Goals

A term insurance plan is purchased with the sole aim of providing your family members with a financial safety net that can help them in meeting with their day to day expenses and crucial life goals in future even in your absence. These goals include looking after the education expenses of your child, offering for medical expenses to your dependents, letting your partner live their life with respect and dignity. However, the inflation rate for each of these future goals is quite different from each other i.e. rate of inflation for higher education can range between 10 to 20% whereas for health expenses it is 15 to 20% and 8% is for retirement. Thus, after taking into consideration all of these hikes, it is important to ensure that the term plan opted by you takes care of the impact of inflation and offers enough financial assistance to your loved ones in times of need.

Increase in Cost Because of Age

With the passage of each year, there is not just a rise in cost of goods and services but also an increase in your overall expenses. This rise can be possible because possibly with increase in age you and your partner may need more medical attention. Additionally, it is also possible that your liabilities may increase too as you can opt for loans to buy your own house or vehicle, take an education loan for your child, etc. Your family members would be left in a financially vulnerable position in your absence with the rise in cost and impact of inflation.

What Can Be Done?

You can beat inflation by opting for a term insurance cover with the option of increasing the sum assured. Here, with this option in hand, there would be an increase in the amount of sum assured each year by a specific percentage. Doing this ensures that the amount received by your family in the form of death benefit would be enough to meet the finances of your loved ones even if inflation comes into account.