Why inflation is messing with your life insurance - and how to keep it under control
Is your future insurance cover at risk because of inflation?
You know what's worse than running out of Vegemite? Inflation. Yeah, it's when the price of things keeps skyrocketing, and your money loses its value quicker than ya can say "G'day!" It's like a money meltdown on steroids! And guess what? It's currently at its highest level since the 80s. So, be prepared to pay more for stuff in the future—like a fancy coffee that'll cost you a kidney.
Speaking of the future, if you've got life insurance, the amount of cover you have now may not cut it down the track. So how do you make sure your policy keeps up with inflation? Read on...
Inflation may take your insurance premiums for a ride
Some insurance policies come with something called “indexation benefit”. In plain English, it means that your cover will go up every year to match the ever-increasing living costs. No more fears of getting caught in hot water if prices skyrocket and you need to claim on your insurances! And in this case, it means there's a little bit more cash outta pocket. Your insurance costs will also increase along with the protection.
The rising Consumer Price Index (CPI) and what it means for you
When the insurance benefit amount (the sum insured) goes up, you can expect your premium to follow suit. A lot of policies offer the choice of automatic increases each year to keep up with inflation or Consumer Price Index (CPI).
Even if you have a level premium policy, your premiums will still increase if the benefit amount is rising with CPI. So what’s the silver lining? Why would I want to pay more?
Well, usually, you would need to make an application to increase your covers which would result in going through underwriting all over again. Indexation means you can rest assured you will have enough cover in the future, provided you haven't made any significant changes to your financial situation.
But if you don't want the automatic increases, you have the option to opt out when your renewal comes around. It would be great to have a chat with your financial adviser and let them know your preference.
Need to make your cover more affordable? Here are some tips
When the cost of living keeps climbing, it can be a real struggle to manage those insurance premiums. But don't worry, there are ways to make your cover more affordable and still stay covered. Here are some changes you can consider:
Scale back the amount of cover you hold.
Remove optional extras that you don't really need.
If you have Income Protection, tweak or increase the waiting period.
Try the Suspending Cover Benefit (may be available for policyholders with some insurance providers), where you can kick back and not pay for insurance for up to a year (just don't try to file a claim during that time, as you’re not covered in this situation, okay?).
As always, chat with your financial adviser to figure out which changes will work best for your situation. Don't let high insurance costs bum you out—you got this!
Common questions answered
How often is the increase in premium due to indexation benefit applied?
A: The increase in premium due to indexation benefit is applied annually.
Can I opt out of the indexation benefit and keep my premium the same?
A: You may be able to opt-out of the indexation benefit, but this will mean that the amount of protection you have stays the same, which may not be enough to meet your needs in the future.
Does the indexation benefit apply to all types of insurance policies?
A: No, the indexation benefit may not apply to all types of insurance policies. It's best to check with your financial adviser to see if it's included in your policy.
How does the indexation benefit differ from a standard premium increase?
A: The indexation benefit is different from a standard premium increase because it's specifically designed to keep up with inflation and maintain the value of your insurance cover.
Will I be notified before my premium increases due to the indexation benefit?
A: Your insurer should provide you with notice of any premium increases, including those resulting from the indexation benefit.
Is the indexation benefit worth the extra cost?
A: The indexation benefit can help ensure that your insurance cover keeps up with inflation and maintains its value over time, so it may be worth the extra cost for some people. However, it's important to review your policy regularly to make sure it still meets your needs and is providing the best value for your money.
Alright we all know that inflation is like an unwelcome guest who just won't leave, but there are ways to make sure that it doesn't ruin your financial game. Here's what you need to do: regularly check your policy, say yes to the indexation benefit at application to ensure it's there if you need it (Remember, you can always say no later), and have a chat with an expert to make sure you're getting the most bang for your buck. That way, you can safeguard yourself and the fam from any unwanted surprises down the track. And hey, don't forget to treat yourself to that fancy coffee! Just make sure you're insured enough to cover it (and maybe a cheeky croissant too).