Learn About Indexation or Cost of Living increases
Indexation or Cost of Living increases
By default most Life Insurance policies will include an annual increase of cover (and premium) to ensure your cover keeps up with the cost of living and inflation. The increase is generally calculated using the cost of living rate (Consumer Price Index) or 5%.
This means that as things get more expensive your policy continues to cover your expected expenses. For example, if you took out cover of $500,000 in Mar 2019 your cover would need to be $542,968 at March 2022 in order to cover the same expenses.
| Date | CPI | Sum Insured | Gap in Cover |
|---|---|---|---|
| Mar-19 | $500,000 | ||
| Mar-20 | 1.10% | $505,500 | $5,500 |
| Mar-21 | 2.20% | $516,621 | $16,621 |
| Mar-22 | 5.10% | 542,969 | $42,969 |
Cost of living increases are not mandatory; they can be switched off and on at your request if cash flow management is a concern for you.