3 Reasons Why You Must Consider Inflation When You Buy Term Insurance Plan

16-June-2021 |

Inflation affects everyday life and activities. Whether you buy groceries or gold, you realise that prices have gone up compared to last year or the last time you bought the same thing. Inflation impacts your financial planning and sometimes your buying choices too. However, you may overlook inflation when you purchase term insurance, which could compromise the well-being of your loved ones.


3 Reasons Why You Must Consider Inflation When You Buy Term Insurance Plan


Term plans are one of the most cost-effective and comprehensive ways to secure your family. Term insurance plans offer financial security to your family members in the case of an unfortunate event. Buying adequate insurance cover is essential if you want your family to remain protected financially. Buying a term policy without factoring in inflation could result in the family being left with an inadequate term cover when required.


This article discusses three reasons why inflation is a crucial factor to consider when you buy a term insurance policy.


1. Inflation Decreases the Purchasing Power:


With an increase in inflation, your purchasing power decreases. When you were young, the
number of chocolates you could have bought with ₹100 would be much higher than the quantity
you can buy now. The same applies to the amount that your insurance policy will pay in the
future. What seems adequate in the current scenario may not be enough 20 or 25 years down the
line as the purchasing power of money keeps decreasing.


Likewise, a term policy bought 15 years ago might not be enough to cover the needs of your
family now. Using a term insurance calculator can help you estimate the amount of term cover
you would require for your family's security.


When buying insurance, the inflation index must be considered. Inflation for the year 2020 was


6.2% and is expected to be around 4.89% in 2021. (Source:
https://www.statista.com/statistics/271322/inflation-rate-in-india/). Thus, the value of money
decreases annually by a percentage similar to the yearly inflation. This decrease happens yearly,
reducing the purchasing power cumulatively. As the purchasing power of the rupee decreases,
the same amount of premium paid across years will not offer the same benefits as you had
imagined when purchasing it.


2. Expenses Increase With Increasing Age:


With each passing year, not only does the cost of goods and services rise, your overall
expenses go up too. This increase might be because you and your spouse might require
more medical attention with an increase in age, and your liabilities may also increase.


There is a likelihood that you might borrow for your child's education or buy a home.
With the increasing inflation, the cost of education or a house will keep going up each
year. If the primary provider is absent, family members dependent on him/her may
find it difficult to pay off their loans or fulfil their dreams, like buying a home, getting
higher education, or even covering medical expenses.


Term insurance should be bought, keeping the impact of inflation on the rising
liabilities and costs with age in mind. Therefore, it is crucial to buy a term policy
considering the impact inflation will have on these expenses. Your plan should
be able to beat inflation and provide the required financial protection to your family.


3. Inflation Rates May Vary as per Goals:


You buy a term insurance policy to keep your family financially secure. Your term insurance
requirements will be unique to your family dynamics and goals. Buy the term policy
considering the future expenses and your family’s lifestyle.


For those of you with young children, your term insurance plan should be bought keeping in
mind the educational needs of your children and the rising cost of education. If you have a
dependent spouse, you will have to keep in mind their financial well-being in the future and
medical inflation. As per a report in Economic Times medical inflation stands at 8%,
while education inflation is around 10% from 2012 to 2020.


Depending on your goals, the inflation rate you should factor in for your calculations will also
vary. Your term life cover should be in line with the expected rise of various costs over the
years so that your family has the required amount to deal with any situation.


So What Should You Do?


The above discussion emphasizes that inflation is a crucial factor to consider when you buy a life cover. How can you ensure the term policy that you buy provides your family with an adequate cover?


Tata AIA Life Insurance offers term plans that help you keep your family safe. You can choose from three options keeping in mind your family’s needs.


The term plans offered by the company allow you to opt for higher protection considering your family’s needs and inflation. You can increase the cover at a future date in line with important milestones like marriage or childbirth.


You can buy a term plan online. This option ensures that protection for your family is just a click away. It's a quick and hassle-free way of keeping your family safe. With features like enhanced protection through a rider# and inbuilt payout accelerator, TATA AIA plans are just the right solution for keeping your loved ones safe without inflation playing spoilsport.




A term insurance plan tailor-made to suit your needs that considers the impact of inflation can provide your family with the right security blanket. Always choose your insurance products after extensive research and going through the product features carefully. This will ensure that your family has adequate financial protection in case of an unfortunate event.




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