People buy life insurance with an objective to ensure financial security and comfort of their family in their absence. Ideally, the Insured
would want a cover that is big enough to help their dependents pursue the same quality of life as they are doing today. Most people tend to decide the required sum Assured
or insurance cover based on the current cost of living for their family, but what they forget to incorporate in their calculation is the impact of inflation. As a result, many of us are under insured and though we may have brought a life insurance policy, but it really is not fully serving the objective.
Inflation is a monster which deteriorates the value of money with time. Over the last few years we have witnessed how rising Inflation
can not only deteriorate the value of your savings, but also your ability to save. Inflation as measured by the consumer price index, commonly known as CPI was 10.9% in 2013 and 9.9% in 2012. This implies that basket of consumer goods/services which were available at INR 100 in 2011 will now cost you about INR 121. The other way to look at it is the value of your money has eroded to the extent of 21% over two years.
Hence, while determining the amount of money that your family would need in your absence, be sure to incorporate the impact of inflation. If your family needs INR 4 lakhs today for maintaining a quality of life you would aspire for them, you would then need to plan for a cover that should assure them a significantly higher amount than 4 lakhs, because inflation will eat away a lot of value as the amount of services and goods that you can look to buy with INR 4 lakhs today will not be the same in the future. You would be able to afford much less.
To determine the ideal Sum Assured
of your insurance plan, you need to know how inflation would shape up over the next few years. The best way to do so is take the historic inflation numbers as guidance for the future. If historically, the inflation in the country has averaged at around 6%, you may apply this factor on your estimated cost of living and determine the amount of sum assured that would be enough for your family.
Once you know the right cover you need for your family, it is time for you to compare insurance online to know which Policy
offers you the desired sum assured at the lowest insurance Premium
cost. Once you have zeroed in a policy, you can also buy online insurance.