How Inflation Affects Your Insurance: Have you ever wondered how inflation affects your insurance policy? If you have not thought till now, then think now, because rising prices put a dent in your insurance as well as your deposit.
How Inflation Affects Your Insurance : Are you also among those people who think that what does inflation have to do with insurance? Or do you think that people care too much about inflation. If so, then you should reconsider your thinking. This is because inflation can have a profound effect on your insurance. Also on your pre-purchased insurance policy and also on the future financial security of your family. If you do not take care of the rising inflation, then even after buying an insurance policy, you will not be able to keep the future of your family completely away from the financial crisis.
Effect of fall in the real value of rupee
Insurance policies are always taken keeping in mind the possible long-term needs and protection. But due to inflation, the real value of the rupee decreases. It also has a direct impact on the actual value of your Sum Assured i.e. Sum Assured. For example, to take a term plan, it is generally said that you should take a term plan with an amount equal to 10 to 12 times of your annual income. But if the rate of inflation continues to rise very rapidly, then the amount which you thought was sufficient to protect the future of your family while insured may prove to be very less in the coming days. Because the requirements that you estimate on the basis of today’s prices or on the basis of expectation of slow rise in inflation, they may prove to be wrong if prices rise rapidly. The same applies to health or medical insurance policies or any other policy. Now the question is, what should be done to avoid such a situation?
Insurance policy and requirement review
You should review the insurance policy you have purchased every year. During this, your focus should be on whether the policy you had taken a few years back is sufficient to meet the growing financial needs of the family in case of any trouble and the boom in it due to inflation? If you feel that the existing policy amount is not enough, then you can increase it through a top up plan or by taking a new policy.
Be sure to pay attention to these needs
The family’s first needs while taking insurance are the ownership of the house, higher education of the children, medical expenses and the requirement of money at the time of retirement. All these things are affected by inflation. For example, the cost of children’s education may increase every year at a faster rate than you would expect. The same applies in the case of treatment costs as well. For example, a surgery that costs Rs 5 lakh today may cost 10 lakh or 20 lakh after a few years. Keeping all these rising expenses in mind, it is necessary to increase the sum insured in the same proportion.
Increase the sum insured according to the growing needs
If the purchasing power of the rupee is declining sharply due to inflation, then you need to keep this in mind while determining the insurance cover you need for your family. According to the speed at which the real value of the rupee is depreciating, you will have to make the necessary addition by estimating the future value of the sum insured i.e. its potential purchasing power in future. That is, if the purchasing power of the rupee is declining at the rate of 8 per cent every year, then while estimating future needs, you will have to increase your investment so that inflation does not jeopardize your family’s security. It is not necessary that you take the help of any prevailing rule i.e. thumb rule to assess the growing needs of your family. You can make your own best guess about the actual needs of your family. If you keep these things in mind and keep increasing your insurance cover from time to time, then you will not have to face financial crisis even if you have insurance at the time of need.
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