What is the story about?
With headline inflation in India remaining moderate, variations across expense categories are becoming more visible. Data indicates that while overall inflation is stable, certain household costs, particularly healthcare and education, are rising at a different pace, prompting a reassessment of how financial protection tools like term plans account for such trends.
Latest official data shows consumer price inflation (CPI) at 3.21% year-on-year in February 2026, up from 2.74% in January, but still below the long-term average of around 5.6%.
Sub-indices for health and education remain in the low single digits, according to government data. However, these figures often understate the cost pressures faced by urban, middle-class households.
Real-world inflation outpaces official data
Industry estimates suggest a significantly higher inflation trajectory in key categories:
This divergence creates a gap between headline inflation and actual household expenses.
For instance, a ₹1 lakh medical procedure today could nearly double in cost within 5–6 years at current inflation levels, while education expenses compound over longer horizons.
Insurance products adapting to inflation risks
In response, insurers have been promoting “increasing term assurance” plans—products that automatically raise the sum assured annually, typically by 5–10% of the base cover, without requiring fresh underwriting.
These plans, offered by multiple life insurers, usually cap the total cover at twice the base sum assured. For example, a ₹1 crore policy could grow to ₹2 crore over time, depending on the chosen escalation rate.
Partial hedge, not a complete solution
Experts say such plans improve protection compared to static policies, but may not fully offset long-term cost inflation in critical areas.
“An increasing term insurance plan is one of the approaches available to address the impact of inflation… However, in a scenario where healthcare inflation is running in double digits… a fixed 5–10% increase in cover may not consistently keep pace over the long term,” said Madhu Burugupalli, Head – Product Management & Strategy at Bajaj Life Insurance.
The effectiveness, she added, depends on factors such as the initial cover amount, policy tenure, and changes in income and liabilities over time.
Similarly, Vikas Gupta, Chief Product Officer at ICICI Prudential Life Insurance, noted that while rising costs are making increasing-cover plans more relevant, “increasing cover every year is not the only solution,” pointing to flexibility in some policies to enhance cover at key life stages.
Cap on cover, adequacy concerns
A structural limitation of these plans is the cap—typically set at 2× the base sum assured—which may constrain long-term adequacy, especially for younger buyers with 20–30 year horizons.
Burugupalli said the cap “is an important structural feature that younger policyholders need to factor in,” adding that starting with an adequate base cover is critical.
Gupta also highlighted that the cap balances affordability and risk, but policyholders can opt for additional policies or riders if higher coverage is required.
Role within broader financial planning
Industry experts agree that increasing term plans should not be viewed as a standalone solution to inflation risk.
“Term insurance serves as a financial safety net… [but] rising medical costs are best managed through a comprehensive health insurance plan, while education expenses are typically better addressed through goal-oriented investments,” Burugupalli said.
From a different perspective, Nitin Mehta, Chief Distribution Officer & Head – Marketing at Bharti AXA Life Insurance, described increasing cover as “a base expectation” in modern policies, noting that while it may not fully match healthcare and education inflation, it provides a “much-needed buffer” against rising costs.
At the same time, he emphasised the need for periodic reassessment, as “a policy that was perfect at age 25 is rarely enough at age 45.”
Balancing inflation, affordability and coverage
The broader takeaway is that increasing term plans help mitigate the erosion of purchasing power—particularly when bought early and with higher escalation options—but do not fully neutralise the impact of sector-specific inflation over long durations.
As a result, financial planners advocate a layered approach:
Latest official data shows consumer price inflation (CPI) at 3.21% year-on-year in February 2026, up from 2.74% in January, but still below the long-term average of around 5.6%.
Sub-indices for health and education remain in the low single digits, according to government data. However, these figures often understate the cost pressures faced by urban, middle-class households.
Real-world inflation outpaces official data
Industry estimates suggest a significantly higher inflation trajectory in key categories:
- Healthcare: Medical costs are projected to rise 11.5% in 2026, according to the Aon Global Medical Trend Report, with broader estimates ranging between 12–15% annually.
- Education: Private school and college fees are rising 8–12% annually, with sharper increases reported in premium institutions, as per industry estimates.
This divergence creates a gap between headline inflation and actual household expenses.
For instance, a ₹1 lakh medical procedure today could nearly double in cost within 5–6 years at current inflation levels, while education expenses compound over longer horizons.
Insurance products adapting to inflation risks
In response, insurers have been promoting “increasing term assurance” plans—products that automatically raise the sum assured annually, typically by 5–10% of the base cover, without requiring fresh underwriting.
These plans, offered by multiple life insurers, usually cap the total cover at twice the base sum assured. For example, a ₹1 crore policy could grow to ₹2 crore over time, depending on the chosen escalation rate.
Partial hedge, not a complete solution
Experts say such plans improve protection compared to static policies, but may not fully offset long-term cost inflation in critical areas.
“An increasing term insurance plan is one of the approaches available to address the impact of inflation… However, in a scenario where healthcare inflation is running in double digits… a fixed 5–10% increase in cover may not consistently keep pace over the long term,” said Madhu Burugupalli, Head – Product Management & Strategy at Bajaj Life Insurance.
The effectiveness, she added, depends on factors such as the initial cover amount, policy tenure, and changes in income and liabilities over time.
Similarly, Vikas Gupta, Chief Product Officer at ICICI Prudential Life Insurance, noted that while rising costs are making increasing-cover plans more relevant, “increasing cover every year is not the only solution,” pointing to flexibility in some policies to enhance cover at key life stages.
Cap on cover, adequacy concerns
A structural limitation of these plans is the cap—typically set at 2× the base sum assured—which may constrain long-term adequacy, especially for younger buyers with 20–30 year horizons.
Burugupalli said the cap “is an important structural feature that younger policyholders need to factor in,” adding that starting with an adequate base cover is critical.
Gupta also highlighted that the cap balances affordability and risk, but policyholders can opt for additional policies or riders if higher coverage is required.
Role within broader financial planning
Industry experts agree that increasing term plans should not be viewed as a standalone solution to inflation risk.
“Term insurance serves as a financial safety net… [but] rising medical costs are best managed through a comprehensive health insurance plan, while education expenses are typically better addressed through goal-oriented investments,” Burugupalli said.
From a different perspective, Nitin Mehta, Chief Distribution Officer & Head – Marketing at Bharti AXA Life Insurance, described increasing cover as “a base expectation” in modern policies, noting that while it may not fully match healthcare and education inflation, it provides a “much-needed buffer” against rising costs.
At the same time, he emphasised the need for periodic reassessment, as “a policy that was perfect at age 25 is rarely enough at age 45.”
Balancing inflation, affordability and coverage
The broader takeaway is that increasing term plans help mitigate the erosion of purchasing power—particularly when bought early and with higher escalation options—but do not fully neutralise the impact of sector-specific inflation over long durations.
As a result, financial planners advocate a layered approach:
- Adequate base life cover,
- Periodic review and top-ups,
- Separate health insurance, and
- Dedicated investments for long-term goals such as education.
