Why “Inflation-Linked” Health Insurance Isn’t Enough

Inflation-linked features in Indian health insurance are becoming more common, but they cannot fully neutralize 10–14 per cent medical inflation on their own. The families still need higher base covers, super topups and a separate medical corpus in long-term planning.

In practice, “inflation-adjusted” or automatically increasing covers in India are delivered through features rather than increasing cover by using the Consumer Price Index (CPIindex) used to measure inflation in India. These features are like adding a Cumulative Bonus or No-Claim Bonus (NCB) to the sum assured on renewal. Another way is by offering Automatic Recharge or Restoration benefit, where if you exhaust the sum insured in a year, the insurer restores it (once or unlimited times) for new claims in the same year.

“Some policies provide explicit 'inflation protector' riders. Here, this add-on adjusts the sum insured annually using the Consumer Price Index.

But ironically, none of these make the cover grow at 10–14 per cent in every single year with guaranteed, open-ended compounding. Feature-based increases have caps (say 100 per cent of base sum insured) or are contingent on you renew and it is a claim-free year,” says Madhupam Krishna, Securities and Exchange Board of India (Sebi) registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors.

Why CPI-Linked Insurance Does Not Cover Inflation 

Medical inflation in India has indeed run far ahead of general inflation. Recent data and industry commentary cite around 14 per cent average healthcare inflation, with the National Health Authority placing 2022–23 medical inflation in that zone. Here is where CPI-linked inflation covers come in.

“CPI-linked addons theoretically track inflation annually, but they usually apply to future years’ SI and may lead to stepup in absolute premiums because the insured amount itself rises,” says Krishna.

So, yes, these features meaningfully slow the erosion of cover by inflation and improve resilience against sequences of claims, but they do not eliminate the need to periodically reset the base cover upward and/or add super top-ups.

Do Inflation-Linked Covers Make Sense? 

Inflation-linked covers still make sense as one layer of protection, but not as your primary hedge against 14 per cent medical inflation. One has to assume the gap and cover it with higher base sum insured, super top-ups and a medical corpus.

So, yes, such plans are worth paying a reasonable extra premium for, provided you frame them as a convenience and partial cushion—and explicitly plug the remaining gap through suminsured strategy and corpus building, rather than assuming “inflation indexed” equals “inflation proof.”

Such plans still make sense for many households because they address behavioural inertia—most people do not proactively enhance cover every few years. “An auto-step-up ensures that coverage keeps moving upward without fresh underwriting, paperwork, or missed decisions. While it may not fully neutralise 14 per cent inflation, it significantly reduces the erosion of cover compared to static policies,” says Narendra Bharindwal, president, Insurance Brokers Association of India (IBAI).

Agrees “These mechanisms help, but they don’t fully match medical inflation, especially for tertiary care in metro hospitals. Their real value lies in preventing inertia. Most families don’t voluntarily enhance health cover every year, and automatic increases ensure the policy doesn’t quietly lose relevance,” says Amit Suri, founder, AUM Wealth.

What You Need To Keep In Mind When Porting 

This is a critical but often misunderstood point. “Under Indian regulations, health insurance portability preserves your original base sum insured and the waiting periods you have already served, but it does not automatically carry forward any enhanced cover built through cumulative bonuses or inflation-linked step-ups, which are typically reset unless the new insurer explicitly agrees to match them,” says Bharindwal.

“This is why frequent switching purely for marginal premium savings can be counterproductive. Once a policy has built up meaningful enhancements and clean claim terms, continuity itself becomes a form of value,” says Suri.