Can Your Term Insurance Keep Up With Inflation?

Unless you are at the age of 60, and the only worry is the occasional delays in your pension, you are likely to have a growing living cost. The cost of living will continue to increase in the long run, which is a universal economic fact. If you are in your 20s or 30s, your family’s financial and personal needs will also grow. It means that your lifestyle 10 years from now will be very different and slightly more costly than it is today. This growth is personal as well as due to inflation. Hence, even when you are planning for retirement, you should consider inflation because, due to inflation, your expenses will keep on growing even if you somehow manage to maintain a steady lifestyle.

Inflation Impact on Your Financial Needs

Inflation is one of the most influential factors when planning for long-term financial goals. It is the reason you need to invest your money, or else it will start to lose its value.

For example, if you have ₹1 lakh right now, you have two options:

• You can keep it in your pocket. In which case, over 10 years, its real value will be about ₹61,000, if we assume a 5% p.a. Inflation.

• Or you can invest the money at 7% p.a., in which case, 10 years later, you will have approximately ₹1.97 lakhs. The real value of this money after inflation will be about ₹1.2 lakhs.

With this example, you can understand why most of the financial goals you are investing in will cost more than the present price of the goal. Also, your family’s regular financial needs, like kitchen and lifestyle expenses, will keep growing.

Understanding Human Life Value (HLV) and Its Impact on Insurance Needs

Your term life cover need is based on your human life value (HLV). HLV indicates your total financial value at the moment, based on your present income or expenses. Thus, your HLV will increase as your income or expenses increase.

For example, if you are 30 years old and earning ₹24 lakhs per annum, your HLV would be about ₹3.5 crore (approximately 15 times your annual income), assuming you will retire at the age of 60.

However, if at the age of 35 you were earning ₹30 lakhs, your new HLV would be about ₹4 crores.

If you want to estimate your HLV growth based on your expenses, it will be similar. However, in that case, you will need to estimate the growth in the value of your financial goals separately. Thus, the income method is easier and simpler to follow.

Once your HLV has grown significantly, as in our example, you should consider increasing your term life cover to match the new number.

How a Growing Life Cover Can Help You Beat Inflation?

Having a term life plan that allows you to increase your coverage without purchasing a new term policy has many advantages. The biggest advantage is the cost savings that can be achieved when increasing your life cover at a higher age.

The increasing term cover plan does not charge an extra premium with every increment. Instead, your premiums remain the same throughout your premium payment term.

With the life-stage increment option, your premium will increase with each subsequent life stage. However, it will be significantly lower than a new term plan. Additionally, you may not be required to undergo a medical examination, as you are an existing policyholder with the insurer.

Other Factors Influencing Your Term Life Cover

Inflation is an important factor prompting HLV growth; however, it is far from the only factor. Apart from inflation, you have many life events that add to your financial responsibilities, influencing your HLV growth.

A few of the most important life events are as follows:

1. Marriage or the start of family life
   

2. Childbirth
   

3. Purchasing ahome with a home loan

In all such cases, your term life cover needs to significantly increase to cover the newfound responsibilities.

How to Increase Your Term Life Cover?

There are three ways you can have your term life cover grow along with your financial needs:

• Buy a new term cover every few years.
  

• Buy a growing term cover.
  

• Get a term plan that gives you the option to increase the cover with major life events.

1. Buying New Term Life Cover: If you already have a term life cover and now find your HLV significantly higher, you may have no other option but to buy a new plan. However, this is not recommended for the future.
   Your term life cost can increase significantly as you age. Thus, every time you add a new term policy to your portfolio, the cost of your new insurance cover will be significantly higher than the earlier one. This is especially true once you cross the age of 35.
   
   
2. Growing Term Cover: Growing term cover is a great way to ensure that your life insurance cover keeps growing every year automatically. However, this type of cover is better if you are already married, have children, and have bought a house.
   Since you have already crossed these milestones in life, your term cover only needs to keep up with your income and lifestyle growth. However, if you are still early enough to cross these milestones, the term cover with life-stage increment option would be better.
   
   
3. Life-Stage Increment Option in Term Plans: Life stages that mark a new chapter in your financial and social life demand an increase in your term cover as well. We, at Canara HSBC Life Insurance, offer online term insurance plans with this option.
   The iSelect Smart360 Term Plan by Canara HSBC Life Insurance has the option for both automatic annual increment and life-stage-based increment. In the life-stage increment option, you can request the insurer to increase your term cover under the existing policy.

Wrapping Up

Inflation is inevitable, and so is the growth of your financial responsibilities over time. From rising lifestyle costs to major life milestones like marriage, childbirth, and homeownership, your Human Life Value (HLV) continues to increase. A stagnant term life cover simply cannot offer the long-term protection your family may need.

Choosing a flexible term insurance plan like the iSelect Smart360 Term Plan by Canara HSBC Life Insurance ensures that your coverage evolves with your life. With options like automatic annual increases or life-stage-based enhancements, it’s possible to stay ahead of inflation without constantly revisiting your financial planning. The sooner you act, the more cost-effective and impactful your protection will be.