Independent Insurance and Health & Protection Advisors 
01234 419999 
Prices are currently rising much more quickly than they have in the last 40 years and inflation is likely to be more than 10% by the end of this year. Arguably protection insurance has never been more important but there are concerns about its affordability and what this might mean for increasing cover or index linked policies. 
What is index linked cover? 
Index-linked cover is sometimes also called indexation or increasing cover, which you can include in your protection insurance policy. Depending on your type of policy this can offer two important benefits, before and after you make a claim: 
Before: every year for the term of your policy the sum you’re assured for or your monthly benefit will increase of you need to make a claim. 
After: in the case of income protection, the monthly benefit you receive during a claim will increase. 
How increasing cover works 
The sum assured and the monthly benefit you would receive if you made a claim will increase each year in line with inflation. The increase is most often linked to the Retail Prices Index. Sometimes the Consumer Prices Index is used instead which is normally a little lower because it doesn’t include housing costs such as mortgage interest and council tax, for example. For some plans it’s possible to choose a single fixed percentage increase or a choice of percentage increase at the start of your plan. 
Do premiums increase? 
Yes, your premium will increase each year when the annual increase to your policy is applied. In its simplest form the amount of cover and the premium increase will rise by the same percentage. 
Why increase cover? 
Firstly, it will help to make sure that benefits keep pace with the cost of living. This is most important when you’re taking out an income protection policy where you need a long-term benefit, rather than a single one-off payment. 
Your benefit will continue increasing for the duration of your claim, which could be for seven years or more. In some cases, policies have been known to pay out for more than 35 years
Even policies that have shorter benefit periods of two or five years should include increasing cover so that when a claim is made the benefit will increase in line with inflation. For example, in June 2020 RPI was 1.1% but by June 2022 it was 11.7%, which would make a big difference to most households. 
Increasing cover can also be worthwhile for life and critical illness plans so that the benefit you receive if you need to make a claim will keep up with the cost of living for the lifetime of the policy. It could also be important if the purpose of your policy is to provide capital or living costs because your family’s income will be affected if you die or have a serious illness and are unable to work. 
Are there alternatives to index-linked cover? 
If you’re concerned about the affordability of your protection insurance policy you might choose not to include increasing cover benefit. If you do this it’s a good idea to have guaranteed insurability options (GIOs) so that you can increase the amount assured and paid if your circumstances change. However, GIOs can only be used for certain types of life changes like getting married or having children, they are time limited, and they won’t be an option if you’re already claiming on an income protection policy. 
You might be able to re-apply for higher cover as a new policy or as a top-up for your existing policy. Your new premium will be based on your age and other aspects of your lifestyle. You will also need a medical review in most cases, so there’s no guarantee you’ll be accepted. 
Why you should love your cover 
If you think about what you could buy with £100 in 2012 and what you could buy with £100 today, you’ll realise that keeping pace with the cost of living is important. 
If you’re questioning whether an index linked or increasing cover protection policy is right for you when money isn’t going so far anymore think about the increased benefit you’ll receive rather than the premium. 
Please get in touch for a no-obligation discussion about your protection insurance needs. 
Vida Insurance Advisors is a trading style of N and J Health & Protection Ltd, an Appointed Representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales no. 12657007. Registered Address: 23 Russell Avenue, Bedford, Bedfordshire, United Kingdom, MK40 3TD. 
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