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Why should you consider inflation when buying a term plan

Why should you consider inflation when buying a term plan

why should you consider inflation when buying a term plan

Retail inflation in India, touched 7.35% in December 2019, the highest in almost five years. The rise in the cost of fruits and vegetables was the main contributor to these numbers. Healthcare costs including medicines, hospital admission and doctor’s fees among others, have also triggered a rise in healthcare inflation, which has been growing at double the rate of overall inflation.

These rising costs have a direct impact on the quality of your family’s life as their needs and liabilities continue to grow. Thus, your investments for the future also need to be fine-tuned to ensure that your family is able to maintain a similar standard of living in the long term, despite rising inflation.

One such investment that inflation could have a direct bearing on is term insurance. It is important to factor in whether the term insurance plan you have opted for is enough to cover the needs of your family for the next 20 years, in spite of inflation.

Here are a few reasons why you should consider inflation when purchasing a term plan.

1. A decrease in purchasing power:Inflation can lead to a decrease in your capacity to purchase the same items 10 years down the line. By the time your insurance policy kicks into gear, the rate of inflation may have risen, so you end up purchasing less for the same amount of money as you could 10 years back. A term insurance plan bought 20 years ago would be exhausted faster than you could imagine, leaving your loved ones financially vulnerable.

If we suppose that the rate of inflation is between 5 to 8% in the coming few years, this would mean that there is a corresponding yearly decrease in the rupee by a similar percentage. A term plan wherein you pay the same amount as premium for the given years, will undergo erosion due to the inflation in prices and thus won’t offer similar benefits in terms of coverage as imagined at the time of policy purchase. To put things in perspective: at an 8% inflation rate, what costs 10 lakhs in 2011 would approximately cost 45 lakhs in 2031.

2. Increase in costs due to age and other liabilities: Not only does the price of goods witness a hike, but you own set of costs increase too. As you age, you and your spouse would likely begin to incur more medical and healthcare expenses. Moreover, your liabilities increase too. You may opt for loans to purchase your own house or vehicle. You may take out an education loan to finance your child’s higher education or may opt for a personal loan to finance their wedding expenses. In the event of your absence, your loved ones would be left financially vulnerable with increasing costs and rising inflation. As your own costs increase with time, the effect of inflation will hit hard.

3. Different goals, different rates of inflation: Term insurance is bought in order to help your family meet important milestones and fulfill certain goals in your absence. This could include taking care of your child’s educational expenses, allowing your spouse to enjoy retired life, and providing for medical expenses for your spouse, should the need arise. However, the rate of inflation for each one of these goals is different. The inflation rate of higher education can range from 10 to 20% while it is 8% for retirement and 15 to 20% for health expenses. Therefore, considering all these future hikes, it is important to make sure that the life cover chosen by you is cognizant of the cumulative increase in financial goals in the long term to provide financial assistance to your family in the time of need.

The solution

One way to beat inflation is to opt for a term insurance plan with increasing coverage. A term insurance plan with increasing coverage hikes your coverage by a predetermined amount every year. This ensures that the amount payable as a death benefit is sufficient to meet the finances of your family, even with inflation taken into account.

The iSelect Star plan from Canara HSBC Oriental Bank of Commerce allows you to avail of the benefits of increasing insurance coverage. When you opt for increasing insurance coverage, the sum assured payable to you increases by 5% every year your policy is active. This ultimately cumulates in a 100% increase from your original sum assured.

Opt for term insurance with an eye on inflation and tailor your policy accordingly to beat rising prices and keep them from making a dent in the financial health of your loved ones.

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Frequently Asked Questions (FAQs) for Term Insurance Plans

A person can only purchase a term insurance plan till the age of 65 years, and they can choose the risk coverage for up to 99 years of age. One can easily buy the best online term plan between the age of 18 to 65 years.

This being a term insurance plan doesn't offer any payout after maturity or expiration date

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 65 years of age. This is a term plan with return of premium option – that means all the premiums paid throughout the tenure will be paid back to you if you outlive the policy.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly when you buy the best term plan in India.

If your key purpose is to give your Family financial protection, go for the best term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan. iSelect Star is a term plan with return of premium option. All the term insurance premium will be paid back to you, if you outlive the policy term.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, the best term insurance plan pays a part of the sum insured to treat your disease.

Term life insurance plan riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance plan riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term insurance policy remains active until the expiration date.
  • Income Rider: This rider in a term insurance plan ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term insurance plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while Buying the Best Term Insurance Plan?

  1. 1. Are you buying a term plan with return of premium?
  2. 2. Amount of premium you have to pay based on your age, habits, education, and monthly income
  3. 3. The total number of benefits covered in the term insurance plan. Do they include benefits that you care about the most?
  4. 4. How to save money on tax if you pay for the term life insurance plan?
  5. 5. Do they offer regular income options?
  6. 6. Can you change the coverage and premium in the future?
  7. 7. Does the claim consider valid if death occurs outside India?
  8. 8. Which kind of death is not covered by a term insurance plan?
  9. 9. Can NRIs take a term insurance plan? If yes, what are the conditions?
  10. 10. Does the term insurance plan have a cash value if you decide to cancel the term insurance policy?
  11. 11. Under what circumstances can a term insurance plan be cancelled?
  12. 12. Can I pay the premiums online or make electronic payments?
  13. 13. What will happen to the term life insurance plan if the life assured starts smoking after purchasing the policy?
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