Take Advantage Of Automatic Benefit Indexation!

A key consideration when arranging personal cover, such as Life, Trauma or Income Protection insurance is to calculate the levels of cover needed.

This is usually done with the assistance of a financial adviser and varies for each person, given that everyone’s personal circumstances are unique.

During the application process and prior to the cover being submitted to the insurer, the life insured has the option to decide if they would like to index their benefits to inflation.

This basically means that the original cover level will increase each year by whatever the inflation figure is for that period. Some insurers may cap the figure whilst others will base the increase on the exact inflation number.

This option comes at no extra cost, although usually needs to be selected when the original application for cover is submitted. The insurer will apply the benefit indexation automatically each year, however you do have the option to decline the increase if needed, on a year by year basis.

Declining indexation is usually considered if you no longer require the higher benefit amount or if you wish to help reduce your premium costs, given the cover level is slightly lower.

I always select the indexation option for my clients for two reasons. First of all, it gives the client control over the life of the policy, ie whether or not to apply the increase at that time. The second and main reason relates to any uncertainties regarding your personal health.

You may be healthy or eligible for cover when first applying, however your situation may change over time. For example, if you are unlucky enough to experience cancer or heart disease after your policy comes into force.

This won’t impact your existing cover however may prevent you from opting to increase your cover levels if needed, due to changed circumstances regarding your health. This may include taking on more debt or starting a family.

If you are fortunate enough to have benefit indexation applied to your cover, your levels will continue to increase each year, irrespective of any change in health. Over time, these increases may be enough to ensure you are still adequately protected should your circumstances change.

If you are about to apply for personal insurance cover, please ensure that your benefit amounts have been indexed to inflation!?