What is indexation?
Indexation (also called index-linking) is a feature that automatically increases your sum assured or monthly benefit each year in line with a measure of inflation — typically the Consumer Price Index (CPI) or Retail Price Index (RPI). Your premiums also increase, but your cover maintains its real-terms value over time.
Why does it matter?
Inflation erodes purchasing power. A £200,000 life insurance policy today might only have the real-terms value of £140,000 in 20 years if inflation averages 2% per year. Indexation prevents this erosion.
Is indexation worth it?
It depends on the type of cover:
- For income protection — indexation is strongly recommended, as monthly benefits can run for years or decades and should keep up with rising living costs.
- For decreasing term (mortgage protection) — not usually needed, as the policy mirrors your reducing mortgage balance.
- For level term or whole of life — valuable if your goal is long-term wealth protection or leaving a legacy that maintains its value.
What index is used?
Insurers typically use CPI (Consumer Price Index) or RPI (Retail Price Index). Some policies cap the maximum increase in any year (e.g., 10% maximum), even if inflation is higher.
Frequently Asked Questions
Not usually — indexation is typically chosen at application. Some policies allow you to increase cover at key life events (marriage, mortgage, children) without further medical underwriting.
Yes — if your cover increases, your premiums increase proportionally. This is expected and is the trade-off for maintaining real-terms cover.