What is life insurance indexation
See how life insurance indexation (increasing cover) works
Life insurance indexation sounds complicated, but, once you understand how it works, it’s simpler than you may think.
When you add indexation to your life insurance policy, the amount your policy covers can grow every year. This growth is usually matched to inflation, so it helps the cover keep up with the rising costs of living and can make loved ones less vulnerable.
Indexation can give you confidence that your family will be well taken care of financially, even as prices rise over time.
Should I add indexation to my life insurance (increasing cover)?
While indexation does provide increased protection, it also comes with some things to consider. Since your cover could go up every year, your payments will also rise. It’s important to make sure that you can afford these increases in the future.
Look at your insurance policy carefully to understand how much the payments might go up each year. Some policies have limits on how much the increases can be, so it's good to check the details.
Ultimately, whether or not to add indexation should be a personal decision. Carefully consider your long-term financial situation. If you’re unsure, you can visit unbiased.co.uk for help finding an independent adviser. You can also read more about life insurance policies on the Aviva website.
How does indexation work?
Each year, the cover amount of your life insurance policy increases by a set percentage or in line with an inflation index, such as the Retail Prices Index (RPI) or Consumer Price Index (CPI).
Along with the increase in cover, the amount you pay in premiums will also usually increase. Prices generally increase at a higher rate than the cover amount.
Suppose you have a life insurance policy with a cover amount of £100,000. If you add indexation and the indexation rate is 3% per year, in the first year, your cover would increase to £103,000. Your premiums would also increase to reflect the higher cover amount.
Many policies allow you to opt out of indexation increases if you find the premium increases unaffordable. However if you opt out multiple times in a a row, some providers may remove indexation from your policy.
To start exploring your options and possibly find a policy that meets your needs, you can visit the Aviva life insurance products page. You can also use our life insurance calculator to help you work out how much life insurance you might need. It only takes a few minutes, but it could make a huge difference to your life insurance journey.
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