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Why Should You Consider Inflation When Buying a Term Insurance Plan?

The retail inflation of India rose to 5.69% in December 2023, affecting all goods, services, and commodities - from groceries to gold. This means higher spending on essentials and a rapid increase in costs for services such as education and healthcare, directly impacting your purchasing power and lifestyle. To maintain financial stability, planning efficiently and accounting for inflation is crucial, especially when buying term insurance. 

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Many overlook inflation’s impact on their coverage needs. Term insurance is vital for securing your family’s future against life’s uncertainties. Ensure your coverage amount considers inflation to guarantee financial stability for your loved ones. Some of the key questions to consider include: “Do term life insurance rates go up?” “ Can we increase term insurance coverage?” and “Why do we need term life insurance inflation protection?”.

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Why Should I Consider Inflation When Buying Term Insurance?

Here is a list of 3 reasons why you should consider buying term insurance to beat inflation in the long run:

  • Decrease in Purchase Power

    Inflation reduces your purchasing power. It means that if today you are able to purchase a 1 Crore term insurance at just 473 per month, in 20 years the same plan with the same cover might cost you around 1,000, which can ultimately decrease your purchase power. Therefore, it is suggested that you buy term insurance as early as possible as this not only ensures a quicker and longer term of protection for your family but also allows you to buy term insurance at the lowest premiums possible for the largest life cover.

  • Increase in Future Expenses

    As your age increases, so does your expenses. Right now, you might have no dependents to take care of, but in the future, your life stage may change, and your dependents may increase. For example, today, you might only have yourself to take care of, but in the future you might have to not only take care of your spouse but also your kids, their education, and pay for their wedding. In such cases, term insurance can prove to be a trustable financial tool that can help them take care of these financial goals in their absence despite inflation.

  • Different Degrees of Inflation

    Inflation does not affect everything the same. For example, the prices of food might not rise at the same rate as medical expenses or education costs. With the current rate of increase in inflation, education costs are set to skyrocket, and the rising healthcare or retirement costs can leave your family financially vulnerable in your absence. In such circumstances, term and life insurance serves as a beacon of light for your family members by offering a large life cover as a death benefit in your absence.

How Can Term Insurance Help You Tackle Inflation?

Term insurance can help your family tackle inflation by providing them with a substantially large life cover in your absence.

  • Affordable Premiums: Term Insurance offers large life cover at lower premiums compared to other types of life insurance, making it a cost-effective solution for protecting against inflation and ensuring your family's financial stability. You can use a term insurance premium calculator to get an estimate of the premiums you would need to pay for the desired life cover.

  • Financial Protection: Term Insurance provides a financial safety net for your loved ones in the event of your untimely demise. This protection is especially crucial in times of inflation, as it ensures that your family's financial needs are met, regardless of rising costs.

  • Maintaining Standard of Living: Inflation can erode the purchasing power of your savings over time. Term Insurance helps your family maintain their standard of living by providing a lump sum payment that can cover daily expenses, mortgage payments, and other financial obligations.

  • Flexibility: Term Insurance policies often come with flexible options, allowing you to customize your coverage based on your specific needs and budget. This flexibility ensures that you can tailor your policy to address the impact of inflation and other financial factors over time.

  • Debt Repayment: Inflation can make it challenging to keep up with debt payments, especially if your income doesn't keep pace with rising costs. Term insurance can help your family pay off outstanding debts, such as mortgages or loans, providing them with a debt-free future.

  • Peace of Mind: Perhaps most importantly, Term Insurance offers peace of mind in an uncertain world. Knowing that your family is protected financially, regardless of inflation or other economic factors, can provide immense comfort and security for you and your loved ones.

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How to Choose the Right Term Insurance Plan to Beat Inflation?

Here are some factors you should keep in mind while selecting the ideal term insurance to protect your family in case of your untimely demise:

  • Choose the Right Type of Term Insurance: To beat inflation successfully, you need to assess all the types of term insurance plans and buy the one that best suits your needs. You can opt for a regular, term return of premium, no-cost term insurance, or increasing term plans that will help you successfully beat inflation in the future.

  • Opt for a Term Plan that offers a Large Life Cover: You should carefully assess your and your family’s financial needs in the future in case of your untimely demise and opt for a life cover large enough to help them not only take care of potential inflation but also pay off any remaining loans that you may leave behind.

  • Choose a Plan that allows Life Stage Benefits: Life stage benefits can allow individuals to enhance their life coverage at different life stages, such as getting a home loan, getting married, or having kids. This can help you get adequate coverage for your changing life stages.

  • Opt for a Plan that offers Special Benefits: You can opt for special benefits like voluntary top-up or other benefits that allow you to increase the base sum assured during the policy term.

  • Select the Suitable Payout Option: You should always assess your family’s financial requirements in the event of your unfortunate demise and select suitable payout options, such as monthly or lump sum, to ensure your family is able to meet its financial obligations.

Final Thoughts

Term Insurance is a powerful tool for tackling the challenges posed by inflation and securing your family's financial future. By providing essential financial protection, maintaining their standard of living, covering future expenses, and offering peace of mind, Term Insurance ensures that your loved ones are well-prepared to deal with potential economic uncertainty.

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