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Nilanjan Dey

Kolkata , Aug. 2

INSURANCE companies are offering indexation options to clients with a view to providing a hedge against inflationary pressures.

The options are being packaged attractively, often as an `additional benefit' being given to a policy holder.

Indexation is aimed at protecting the value of the policy against rising prices and ensuring that the owner receives a more realistic amount on maturity. Through indexation, the insured person can increase his or her premium by a certain percentage - payable at a time when such premium is to be paid under normal circumstances. The sum assured, as a result of the extra payment, also goes up.

Insurance companies indicate that indexation options, if exercised progressively each year, will help clients to create a far bigger corpus at the end of the term. The sum assured, both on the basic cover and on riders, increases by the same percentage (as the increase in premium).

Insurance circles also claim that these options are `friendly' to the extent that extra medical tests are not required to be undertaken. An insured person on the other hand simply has to inform the insurance company that the option will be exercised in a timely manner.

A note from Aviva Life Insurance on the matter may be cited as an example. Aviva has pointed out that its indexation rate for the year is five per cent. In other words, an insured party will be required to pay five per cent more as annual premium to get an equivalent increase in his sum assured. An annual premium of Rs 12,000, therefore, will turn out to be Rs 12,600, payable by the same due date.

It may be mentioned that Aviva sends an option letter to its policy owners, requesting them to choose the right annual `modal premium'.

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