What is Indexation in Insurance?

Indexation is a complex-sounding term that is used to describe a relatively simple concept in the world of insurance. Here we’ll break down exactly how it can benefit you.

In a nutshell, indexation refers to a benefit payment that increases in proportion to the cost of living. 

If the cost of living increases by 5% in a given year, an indexed insurance benefit will also increase by 5% so that you, or the listed beneficiary, - don’t lose out on purchasing power when the cost of living increases. Inflation Protection automatically increases your Life Insurance cover amount by 5% every year, or by the Consumer Price Index - whichever is greater. 

The “index” that indexation references is usually the Consumer Price Index (CPI), which is a group of statistics that measure the cost of living in Australia. The statistics measure the average price we pay across a wide variety of goods and services, including:

• food
• alcohol
• clothing
• housing
• health
• transport
• insurance
• education

When the average price of the goods and services included in these categories increases, the Consumer Price Index increases to reflect that. 

Insurance policies that are indexed to the Consumer Price Index will increase in their benefit payout at the same rate.

Are all insurance policies indexed?

The short answer is no.

But the good news is you have the power to choose whether your TAL life insurance policy is indexed by selecting ‘Inflation Protection’ when you take out your policy.

Adding Inflation Protection to your insurance policy can be a great way to help future-proof yourself and your benefit amount against the rising cost of living.