Indexation
Indexation is the automatic annual increase to your insurance cover, and usually your premium, to help keep your protection in line with inflation and the rising cost of living.
Over time, the cost of living increases, and so can the amount of insurance you need. Indexation is a feature offered by many insurance policies that automatically increases your sum insured each year to help maintain the value of your cover. This is noticed when you have stepped premiums.
For example, if you have $500,000 of Life Cover, indexation may increase your cover each year based on a set percentage or a recognised measure such as the Consumer Price Index (CPI). As your cover increases, your premium will usually increase as well.
The purpose of indexation is to help ensure your insurance keeps pace with inflation. Without it, the value of your cover could gradually reduce over time, meaning it may not provide the same level of financial protection in the future as it does today.
Most insurers will notify you before your policy anniversary if indexation is being applied. In many cases, you can choose to accept or decline the increase. If you're unsure whether indexation is right for you, it's worth discussing your options with your adviser.
Why It Matters
Inflation affects the cost of almost everything over time. Indexation helps ensure your insurance continues to provide an appropriate level of financial protection, even as living costs and financial commitments increase.
Common Misunderstandings
"Indexation is just a premium increase."
No. While your premium usually increases, your level of cover also increases to help keep pace with inflation.
"I have to accept indexation every year."
Not always. Many insurers allow you to decline the increase, although doing so repeatedly may affect your cover over the long term.
"My cover will always be enough without indexation."
Not necessarily. As the cost of living rises, the value of a fixed amount of cover can reduce over time.
"Indexation replaces the need to review my insurance."
No. While indexation helps keep your cover up to date with inflation, it's still important to review your insurance whenever your personal circumstances change.
FAQs about Indexation
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Indexation is the automatic annual increase to your insurance cover to help maintain its value over time.
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As your level of cover increases, the cost of providing that cover usually increases as well.
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Many insurers allow you to decline the increase, although it's important to consider how this may affect your level of protection over time.
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It's still a good idea to review your insurance regularly, especially after major life events such as buying a home, having children or changing jobs.
Indexation is designed to help keep your insurance aligned with the rising cost of living, but it isn't the only reason to review your cover. If you're unsure whether indexation is right for you or you'd like to review your insurance, talk to a New Vision Financial Services adviser. We'll help ensure your cover continues to meet your needs today and into the future.