What is indexation?
8 October 2021
Many people are confused as to what exactly indexation entails and how it impacts their policy. Here, we help demystify indexation for you and highlight how it can play a significant role in maintaining the right level of cover to meet your needs.
Indexation is how much your benefit payment increases in proportion to the cost of living. For example, if the cost of living rises by 2% in a particular year, and your insurance cover is indexed, the benefit payments you receive will also increase by 2% to match that. This way, your level of cover, and the benefit amount you receive, will keep up with the rising cost of living.
Why does indexation matter in insurance?
Let’s assume you need $150,000 as a family to maintain your lifestyle and meet all outstanding financial obligations this year. But if the inflation rate goes up (let’s use the same hypothetical of 2% as before), you will need $153,000 to maintain your lifestyle the following year. Taking inflation into account, the cost of maintaining your lifestyle from one year to the next will increase by $3000.
If indexation was part of your insurance cover, then the benefit amount would also increase by $3000 for the next year to match inflation. Without this indexation, your cover would stay at $150,000 and you would need to cover the difference in rising living costs due to inflation, from your own pocket. Even if inflation goes up by just 2% every year for the next 5, 10, 15 years, the difference can add up and the benefits payments you receive may not be enough.
Inflation costs, though they might seem small in the short-term, can truly add up to become unmanageable in the long run. You want to make sure your loved ones are left with enough to cover outstanding debts and pay the bills if you were to pass away or are diagnosed with a terminal illness.
Some of the everyday expenses affected by inflation are:
- Mortgage or rental payments
- School fees
- Childcare fees
- Utility bills
- Car or personal loan payments
- Groceries and other essentials.
Does a life insurance quote generally include indexation?
Some life insurance policies may not be indexed to inflation. But Suncorp Life Insurance offers this option. You can choose whether or not you want your cover to be indexed by selecting the option ‘Inflation Protection’ when you look to finalise your application. It’s important to check whether this is an option when comparing different life insurance policies.
With Inflation Protection your life insurance cover amount will automatically increase by 5% every year, or as per the Consumer Price Index (CPI) — whichever is greater for that year. This way, you can rest assured that your lifestyle stays protected against inflation and the rising cost of living well into the future.
What do I get with Suncorp Life Insurance?
With Suncorp Life Insurance, your family and loved ones get a lump sum payment of up to $1.5 million if you pass away or are diagnosed with a terminal illness, subject to meeting eligibility criteria. This amount can increase with Inflation Protection to be up to $2.5 million.
Suncorp Life Insurance products, other than in some circumstances the Redundancy Benefit, is provided by TAL Life Limited ABN 70 050 109 450 AFSL 237848 (TAL Life) which is part of the TAL Dai-ichi Life Australia Pty Limited ABN 97 150 070 483 group of companies (TAL). TAL is not part of the Suncorp Group. TAL uses the Suncorp brand (part of the Suncorp Group) under license. Any advice on this page in connection with the Life products is general in nature and is provided by Platform Ventures Pty Ltd ABN 35 626 745 177 AFS Representative Number 001266101 (PV). PV is part of the Suncorp Group and an authorised representative of TAL Direct Pty Limited ABN 39 084 666 017, AFSL 243260 (TAL Direct). General advice does not take into account your individual needs, objectives or financial situation. Before you decide to buy or to continue to hold a Life Products you must read the relevant Product Disclosure Statement. The Target Market Determination (TMD) for the product is available on our website.