Index Linking is an option which ensures that the purchasing power of the sum you have insured for, is automatically increased in line with inflation.
If you add Index Linking to your life insurance policy, the insurance company will automatically increase the value of your cover each year in line with retail price inflation. This ensures that the day to day purchasing power of the money the policy would pay out in the event of a claim, is maintained.
The importance of this is easily demonstrated. Let's assume that price inflation runs at 2.5% per year over the full term of a 25 year life policy with cover for £100,000. If the policy holder did not have Index Linking and died in the last year the policy was in force, then the true purchasing value of the pay out would be just £54.500.
If the policyholder, wanted to ensure that any pay out always provided the purchasing power of £100,000 in todays prices, then continuing the above example, the pay out in the last year would have to be £180,873 simply to offset the effects of inflation.
If you opt for your policy to be Index Linked, then the insurance company will increase the value of the cover each year and your monthly premium will be similarly increase to reflect the increase in the cover provided.
Please note:
Index Linking is unnecessary if you are using the life insurance to protect a mortgage. This is because the amount of money owed on a mortgage is not affected by inflation.
life insurance
|
