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How Inflation Impacts Your Term Insurance Coverage

Neviya LaishramNov 13, 2025

Have you ever noticed that the same basket of groceries you purchased for ₹1,000 is now costing more than ₹2,000? That's inflation. It affects more than just your shopping list; it also reduces the value of your term insurance coverage. When you purchase a term plan, your purpose is simple: to ensure your loved ones remain financially supported in the event of your death. However, fast-forward 15 or 20 years, and rising prices can quietly reduce that protection.

Let’s look at the effect of inflation on your term plan and, most importantly, what you can do to ensure your family’s future is secure.

Contents

How Inflation Reduces the Value of Term Insurance Coverage
How does inflation impact the value of ₹1 crore cover?
How to Protect Your Term Plan from Inflation
Conclusion
Frequently Asked Questions

How Inflation Reduces the Value of Term Insurance Coverage

Inflation simply means that the cost of living rises over time while the value of money decreases. In other words, what ₹100 can buy today might only buy goods worth about ₹50 a decade from now.

In the case of term insurance, inflation can reduce the value of your coverage. Most term insurance plans offer a fixed payout. That means the sum assured remains the same throughout the policy term. But while your payout stays the same, your family’s expenses won’t.
Let’s look at what happens:

Purchasing power drops: Your cover’s value doesn’t increase, but the cost of essentials does.
Lifestyle costs rise: Education, rent, and healthcare increase at a faster rate. As years pass, that fixed payout that once felt “more than enough” might start to feel smaller and smaller in real life.
Coverage gap widens: Over time, your original ₹1 crore cover might only meet half of your family’s financial needs.

How does inflation impact the value of ₹1 crore cover?

Let’s assume an average inflation rate of approximately 6% per year (just for illustration, as actual inflation can fluctuate over time).
Here’s how inflation can gradually reduce the real value of your ₹1 crore term cover.

Years Later	Approximate Value (in today’s money)
Today	₹1,00,00,000
After 10 years	₹55,80,000
After 20 years	₹31,00,000
After 30 years	₹17,90,000

So, what does this mean in simple terms? If your family’s current lifestyle, education costs, home EMIs, and medical needs would require ₹1 crore today, those same expenses could easily touch ₹3 crore or more after 20 years.
That’s how inflation quietly erodes the value of a ₹1 crore cover. The number on paper might still say ₹1 crore, but what it can actually buy keeps shrinking over time.

How to Protect Your Term Plan from Inflation

You can’t stop inflation, but you can plan around it. Here’s how:

Opt for an Increasing Term Plan: Some insurers offer plans that automatically increase your cover amount every year to offset inflation.
Review and Upgrade Regularly: Reassess your life insurance coverage regularly. As your income and expenses grow, so should your insurance.
Add Riders Smartly: Riders like accidental or critical illness benefits can add an extra layer of safety against unexpected costs.

Conclusion

While inflation is invisible, its impact is very real. Although a ₹1 crore term plan may look like a good protection today, its value can decline considerably over the years. That’s why it’s so important to choose a plan that grows with you. Reviewing your cover every few years helps ensure it still provides your family with the protection you originally intended.

Frequently Asked Questions

Below are some of the frequently asked questions on How Inflation Impacts Your Term Insurance Coverage

How does inflation impact the value of a ₹1 crore cover?

Inflation reduces the purchasing power of money, which means a ₹1 crore policy today may be worth much less after 10 years.

What is an inflation-linked term insurance plan?

It’s a plan where your sum assured automatically increases each year (usually by 5–10%) to match inflation, ensuring your coverage doesn’t lose value over time.