Why benefits should keep pace with inflation
By Motshabi Nomvethe , PPS Head of Technical Marketing
nflation affects everyday life and activities . Whether
I you buy groceries or are paying for school fees , 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 , most people do not include inflation when reviewing or assessing their insurance needs .
Remember that you buy insurance to protect yourself and keep your family financially secure . If you have dependents , you will need to keep their future financial well-being in mind .
When reviewing your insurance benefits consider the following : with an increase in inflation , your purchasing power decreases .
If you think back to a few years ago , you could buy a bicycle for R1 000 . These days you will be lucky to get a good pair of shoes for that price . The same applies to the amount that your insurance policy will pay in the future .
“ What might seem adequate today , may not be enough in five , ten or 20 years from now , as the purchasing power of money keeps decreasing .
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In other words , it means that
you can most likely expect an increase similar to South Africa ’ s average CPI in your general insurance policy premiums but , as is the case with anything else , while you are paying more , your cover has not increased .
South Africa ’ s CPI is sitting at 4.28 % for 2021 .
But inflation is not all bad . As much as it is typically associated with paying more for things , one must also remember that it often also means that salaries increase by the same margin . On top of this , inflation will mean that the value of assets , such as the property you own , has similarly increased .
That is why , when reviewing your insurance cover , you should always determine whether the total cover you have bought will cover all your assets as they increase over time .
Take Jeremy as an example . He bought R2 million worth of life cover on 1 January 2010 . Over the years , his policy premium increased every year . Regardless of these increases , at the end of 2020 , he still has cover of only R2 million . As Jeremy ’ s salary , assets and responsibilities grew over the past decade , he now realises that the R2 million cover will not be enough should anything happen to him .
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