Inflation: Keep Your Insurance Policy Worthy, Revalue The Assets – Advocacy
Insurance has been proven to be a shock absorber of risk through its transfer mechanism, according to experts. But in the face of high inflationary rate, it is to say that insurance worth might be overwhelmed by some economic factors including inflation.
It is suffice to say that inflation is the worst enemy of future financial planning metrics in place. Expert opinion notes that inflation will impact on value of compensation or lump sum payment you will duly receive.
The key consideration here, according to Ekerete Gam-Ikon, Insurance analyst, is the Value, which inflation eats at and leaves the impression of worthlessness of your insurance.
He adds: ‘It is very easy to say your insurance policies are worthless because of the high rate of inflation. Don’t just believe that but join me to interrogate such declarations and let us arrive at a place of common understanding.
Firstly, recall that the purpose of taking insurance had always been that when the unexpected happens (death, accident, illness etc), you will be compensated, or in case of Life (Term Assurance) Policy, you will receive the lump sum payment you are entitled to.
Basically, inflation will impact on the Value of compensation or lump sum payment you will duly receive. The key consideration here is the Value, which inflation eats at and leaves the impression of worthlessness of your insurance as earlier mentioned.
Put simply, at an inflation rate of 30 percent, the assets valued at N100million and insured for same amount has lost value up to that rate of inflation at the minimum.
So, truly, left the way it is, inflation will make your asset not worth what it was and certainly worth far less at current market consideration.
Will you watch inflation ravage your net worth and value of your asset? No! You will reasonably seek to fight back by either selling off the asset or revaluation to a higher marketable value.
The premium rate for Private Motor Third Party remains N15,000 per annum while Comprehensive Motor Insurance cost 5 percent of the value of the vehicle.
One thing that also happens during the season of harsh and high inflationary rate is increase in insurance frauds. This can certainly affect you if your insurer has been defrauded and decides to scrutinize every claim before payment.
Inflation has diverse negative impact on your insurance policies, especially the Individual Life Assurance policies but the other side of it is that it teaches you how to manage your insurance portfolio and still stay with peace of mind.
This is not the time to just leave it to your insurer’s discretion. We are all challenged. If you have not been using professional advice, get an Insurance Broker today and begin to interrogate your insurance coverages.
Insurers are keenly interested in the latter. To keep your Insurance Policy worthy, you will need to revalue the asset you have insured, and ensure that you are in a good position to be compensated if the unexpected happens.
For example, your vehicle may have been N10million when you bought it last December and took Comprehensive Motor Insurance on it at 5 percent of that value. If anything happens now, whether accident or theft, the basis for compensation will be N10million.
However, consider that the same vehicle goes for N15million today, you will agree that any compensation paid by your insurer, in the case of theft, will not get you the exact replacement because of the change in price and value.
Do not let anyone tell you insurers have increased the Premium on the insurance of vehicles. This happens only when the value of the vehicle is increased to match the market price.
