Indexation is a feature included in a number of Acenda policies where your sum insured automatically increases each year to keep up with inflation.

How indexation helps your cover keep up with the cost of living

Indexation, also known as inflation proofing, is a feature that’s included in a number of Acenda policies. For those policies with this feature in place, your sum insured will automatically increase each year on your Review Date. This measure is designed to ensure that the value of your cover isn’t eroded by the impact of inflation.

What is inflation?

Inflation is a general increase in the price of goods and services over time. This erodes purchasing power over time, which is why it's important to ensure your life insurance keeps pace with rising costs – and that’s what indexation is designed to counter.

How does indexation work?

Indexation works by taking into consideration the Consumer Price Index (CPI) – a group of statistics tracking how much Australians pay for everyday goods and services, and how these prices have increased over time.

As the cost of living increases each year, the indexation feature on policies works by increasing your sum insured in step with these rises. It’s a way of making sure that if you ever need to claim on your policy, the money you’re paid out (the benefit) continues to have the same buying power.

For example, if you needed $50,000 to meet the cost of living today, but next year you needed $52,500 to meet the same costs, the cost of living has increased by 5%. If you apply this same principle to your insurance, you’d increase your sum insured by 5% so that if you need to make a claim, your benefit won’t fall short of your needs.

To understand how indexation applies on your insurance, please refer to your Product Disclosure Statement (PDS) or policy document. Here you’ll find the indexation rate that applies to your policy.

It’s also worth noting that indexation isn’t available on all policy types. There are also some instances where you can choose not to include this feature on your policy.

Choosing to accept (or decline) indexation

If indexation is included as part of your policy, we’ll be in touch each year to let you know how it’s changed your sum insured and premiums, and when these come into effect. If you’re happy to accept indexation for the year ahead, you don’t need to do anything to accept the increase.

If you choose to decline indexation, you can simply let us know via the Customer Portal within the two months following your Review Date. Your financial adviser can also decline indexation on your behalf via the Adviser Portal. Or you can contact our team, who can help action your request.

Why might someone decline indexation?

While indexation helps keep your sum insured aligned with inflation, this may not be something you always need.

For example, if you’ve recently paid down debts or progressed into a life stage where your everyday expenses are lower, you may not need as much insurance as when you took out your policy.

Let’s say your living costs this year are $50,000, which includes mortgage payments and children living at home. Next year, your kids leave the nest, and you decrease the size of your mortgage, reducing your living expenses to $35,000. In this case, you probably won’t need to increase your sum insured. And you may also choose to decline indexation on your policy and review your level of cover for good measure.

Inflation is important to factor in when considering your life insurance coverage. By regularly reviewing your policy with consideration to indexation, you can better protect your life insurance against inflation.

Remember, staying informed and working with a qualified financial adviser can help you navigate the complex landscape of life insurance and inflation, ensuring the financial wellbeing of you and your loved ones in the years to come.