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How does CPI linked increase in Base Sum Insured (SI) works?

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04 May, 2021 by  Kautilya Bhardwaj

I've seen this optional additional rider with some of the health insurance policies. I'm curious to know how does this thing works, especially (but not limited to) regarding the following points -

  1. For e.g., if I added this rider to my policy of 10L sum insured, & CPI comes out to be ~5% for the year in 10K INR. Now, the next year's SI will be 10,50,000/- as per this rider & as every year due to my age and several other reasons my premium of 10K will be (say) 11K for 10L policy. Now, as the base SI has increased, will I have to pay more than the expected 11K for my policy, maybe, 11.5K?
  2. If the answer to the above question is no, will it impact the cost of the rider next year?
  3. CPI as we know compounds. How will it affect my premium in a longer-term horizon, maybe in the next 10/20/50 years?
  4. Regardless of the answers above, is this a wise decision to opt for this rider provided that if I opt to increase the base SI anytime next year the added SI will be considered as a new policy, and all TnC like PED will be applicable as a new policy to the added SI.
  5. If the answer to the above question is no, why?
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10 May, 2021

Apologies for the delayed response. Here are your answers considering Max Bupa Reassure as the product.


For e.g., if I added this rider to my policy of 10L sum insured, & CPI comes out to be ~5% for the year in 10K INR. Now, the next year's SI will be 10,50,000/- as per this rider & as every year due to my age and several other reasons my premium of 10K will be (say) 11K for 10L policy. Now, as the base SI has increased, will I have to pay more than the expected 11K for my policy, maybe, 11.5K? If the answer to the above question is no, will it impact the cost of the rider next year?

No, you have to continue renewing the Safeguard benefit add-on under the policy. The premium for safeguard add-on, like for the base cover, will change based on age. Also, the statement Base SI has increased is incorrect. The Base SI increases when you upgrade the base cover. No Claim Bonus, Sum Insured under Safeguard add-on are separate and have their own conditions. For instance, the safeguard sum insured will lapse if you stop paying for the add-on.


CPI as we know compounds. How will it affect my premium in a longer-term horizon, maybe in the next 10/20/50 years?

In our view, the CPI linked safeguard add-on sum insured will not compound. It will be a simple % of the base sum insured only every year.


Regardless of the answers above, is this a wise decision to opt for this rider provided that if I opt to increase the base SI anytime next year the added SI will be considered as a new policy, and all TnC like PED will be applicable as a new policy to the added SI? If the answer to the above question is no, why?


You cannot entirely depend on CPI linked increase in sum insured for the healthcare coverage you need for your lifetime - Healthcare inflation has been reported to be double digits, wayyy higher than CPI inflation rate, which is between 3-5%. So, if you are evaluating Safeguard only for the CPI-linked benefit, then we don't recommend it.


We recommend that you get enough coverage factoring inflation of 8-10% year on year (compounding) for your old age ASAP. High sum insured policies are currently available at attractive pricing, or even upgrading through the Super Topup route is a better strategy to cover for lifetime of hospitalization expenses.


However, the safeguard add-on has other benefits - it pays for non-medical expenses (usually 3-5% of the claim - can be higher for COVID hospitalizations). It safeguards your NCB for claims up to Rs. 50K etc. Overall, it is a good rider that you should evaluate as a package against the price (not at the cost of buying a low base cover)


Do let us know if this helped you make a decision. Would be great if you update this thread, so that it helps others who have the same question get some perspective.


Regards,

Team Beshak

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