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Support • 3 min read

What is Indexation for insurance?

Indexation refers to a benefit that increases in proportion to the cost of living, also known as inflation.

If you’re looking at taking out insurance, it pays to know what you’re getting and how it will affect your future. So, we’re looking at one of the most frequently asked questions: what is indexation and how does it affect my insurance?

Indexation doesn't need to be a word that you gloss over in the fine print when looking at insurance. Really it is just another way that your insurance policy works for you to make sure you can keep your family and your lifestyle secure. So, let’s look at indexation and what it means for you and your insurance.

What is Indexation?

Indexation is an economic term that means your insurance benefit is adjusted to keep up to date with inflation. Indexation is a factor that changes how much your insurance pays out if you need to make a claim in the future. Put simply, indexation accounts for changes in the economy and inflation, meaning that if your cost of living goes up then your policy payment goes up with it.

Four times a year the Australian Bureau of Statistics releases their Consumer Price Index (CPI), which is a group of statistics that looks at how much it costs every year to buy groceries, go to the cinema, put petrol in your car and more.

Having an indexed insurance policy means that the amount you're insured for changes with the CPI. That helps to future-proof your policy; each year as the cost of living changes, your cover amount increases by a similar percentage on the policy anniversary.

So, if after 10 years you need to make a claim, your payout will have been adjusted to help ensure you aren't left short so you can cover your expenses and look after your family.

What is the Consumer Price Index (CPI)?

The Consumer Price Index measures the average cost of living in Australia. This is where the Australian Bureau of Statistics looks at the average prices that we all pay for goods and services across Australia. It looks at the cost of 11 categories that make up the bulk of living expenses in major cities:

  • Food and non-alcoholic beverages
  • Alcohol and tobacco
  • Clothing and footwear
  • Housing
  • Furnishings, household equipment and services
  • Health
  • Transport
  • Communication
  • Recreation and culture
  • Education
  • Insurance and financial services.

If you imagine that each year you made one purchase in each of these categories, you might see over time that the total cost for that year went up or down. This is the cost of inflation, and it directly affects how much it costs to live in Australia.

The Consumer Price Index has been steadily rising each year since the 1950s, showing how the cost of living in Australia and everything from buying groceries to public transport has steadily increased.

Remember the last time someone said “back in my day you could get a meat pie for $1”? That's basically the Consumer Price Index showing you how prices have changed with the effect of inflation.

Are all policies indexed?

The short answer is no, not all insurance policies are indexed, however many offer this feature. You can always check whether indexation is included or not—this information will usually be in the PDS.

Insuranceline Life Insurance and Income Protection policies are indexed, which is intended to help ensure your cover keeps pace with inflation so you’ll have enough money should you need to make a claim. If you don’t want your policy indexed, then you can simply let us know.

Talk to one of our Insurance Specialists today on 13 77 87 about how Life Insurance can work for you.

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^Offer available to Insuranceline customers who complete an application for an Insuranceline branded and distributed Life Insurance, Income Protection or Funeral Insurance policy between 1 October 2023 and 31 March 2024 (inclusive) and are issued with a policy with a commencement date prior to 00.01AM (AEST) 1st of May 2024. To be eligible policy holders must hold the policy for 4 consecutive months and pay 4 months’ premiums in full. One Gift per customer. View full terms and conditions.

**Bonus 10% more cover is calculated on the fifth anniversary from the Policy Commencement Date. Each adult life insured will have an extra 10% of the average Funeral Insurance Cover amount held during the previous five years added to their Funeral Insurance benefit. Terms and conditions apply. Refer to the PDS for more information.

#Claims paid figures relate to all Insuranceline life insurance policies in the 2021 financial reporting year (1 April2021 to 31 March 2022). All claims on Insuranceline policies are assessed against the relevant policy terms and conditions. These terms and conditions, as well an explanation of the claims process, can be found in the applicable Product Disclosure Statement. Claims are administered and settled by the insurer, TAL Life Limited.

***Insuranceline is the longest standing provider of Funeral Insurance in Australia, based on: Strategic Insight, Actuaries & Researchers. Funeral Insurance means a policy with periodic premium payments that provides a lump sum to help pay for funeral and associated expenses when you die and excludes pre-paid Funeral Plans and Funeral Bonds.

The information provided on this website is general advice only which means it does not take into account your individual needs, objectives or financial situation. For this reason, you should consider whether it is appropriate for you, and before you decide to buy or to continue to hold an insurance product, you must read the relevant Combined Product Disclosure Statement (PDS) and the Financial Services Guide (FSG). The PDS/FSG contains important information which will help you understand the product, including what's covered and what's not covered and to decide whether it is appropriate for you. The Target Market Determination (TMD) for the relevant product, where applicable, is also available.

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