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Everything you need to know about index-linked cover

Everything you need to know about index-linked cover

With inflation still at high levels and living costs still affecting individuals and households, index-linked protection insurance is a recurring conversation we’re having with advisers. On the one hand there is an obvious case to be made for why index-linked cover is essential, in shielding the value of a clients policy from being eroded by inflation. On the other hand advisers and their clients are rightly concerned about steep premium increases where policies do include this benefit, which in some cases could be unaffordable and force clients to simply cancel their policy entirely.

In this series of insights we’ve taken a deep dive into indexation and focused on some of the reasons why we believe it to be a valuable and in some cases essential recommendation, in what way the clients premium will be effected and how they can opt out if they wish to. We’ve also taken the opportunity to highlight a claim case study we first published in 2021, which provides a clear example of why the value of indexation on income protection plans.


The value of index-linked cover is in protecting the long-term purchasing of the clients sum-assured/monthly benefit. This is true for most protection policies and arguably essential when it comes to income protection. In this insight we examined some of the reasons why indexation should be recommended and why it’s important to properly explain to the client how it works.

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When selecting index-linked cover the client’s premium will increase each year to reflect those rises in the level of cover. How much the premium increases by though varies across the market, with applying different increase calculations. In this insight we examined in detail some of those differences and what they mean for the clients premium and also included a handy calculator to help advisers compare insurers when it comes to indexation premium increases.

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As we established in the previous insight, insurers will increase the client’s premium when applying indexation increases and when, as is the case now, inflation is particularly high this could mean steep premium increases. Giving clients some flexibility to opt out of indexation increases means they can keep premiums affordable at what might be a financially difficult time, without losing the benefit entirely. In this insight we looked at what options insurers give clients when it comes to those opt outs and which insurers are the most generous in their approach.

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The real life benefits of inflation 

A real life case study

Talking about policy features and benefits with a client can often feel a little abstract and because most people hope to never claim on their policy, the value of benefits like indexation can potentially be disregarded. Real life claim stories help to bring to life the reality of why protection insurance is important and in many cases also highlight the value of certain policy features and benefits. This 35 year claim story highlights a number of things, but in this context why we believe indexation is an essential IP recommendation.

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About The Author

Adam Higgs

Adam leads Protection Guru's detailed protection research and benchmarking of both product and operation features provided by insurers and has a vast knowledge of the protection market. He has been instrumental in building the protection comparison service Quality Analyser and maintaining the data to enable adviser to quickly and easily compare protection products based on qualitative measures. He also works with adviser firms to help in panel reviews and with insurers to help them understand the shape of the market, their strengths and the areas that could be improved in their products. In his spare time and when not spending time with his wife and two children, Adam is a keen Arsenal fan and enjoys hacking his way around a golf course.

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