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How to ensure you and your loved ones are protected, even if the cost of living rises

How to ensure you and your loved ones are protected, even if the cost of living rises

Jun 16, 2021

Between 1987 and 2008, the cost of a loaf of bread in the UK doubled. A kilo of cheese in 2021 costs about two and a half times what it did in the late 1980s. And, a pint of beer is more than three times as expensive now as it was three decades ago.

All this is because of inflation.

Over time, you might have become used to the cost of the things you buy gradually rising over time. However, when it comes to your protection, inflation is an important consideration. What you might think is the right amount of cover now could leave you short in 10-, 20- or 30-years’ time.

Taking inflation into account is really important when it comes to things like life insurance and Critical Illness cover. Read on to find out why, and what you can do about it.


Inflation means the cost of goods and services is rising

Inflation is a measure of how the cost of goods and services is increasing. It’s one of the key economic measures, as the rate of inflation determines what you can buy for your money.

Simply put, if the rate of inflation is high, your money doesn’t go as far. If your wages, or the value of your savings, are not rising as quickly as inflation, your buying power is lower and your money loses value in real terms.

In May, the UK rate of inflation was 2.1%. This means that goods and services cost, on average, 2.1% more than they did a year ago.

If your wages haven’t increased in that time, your standard of living has fallen slightly as you can’t buy as much for the same money.

Here’s an example showing the rising cost of milk in the UK.



Source: Office for National Statistics


Between 1987 and 2008 the cost of milk doubled. Since then, the cost of milk has remained fairly steady.

So, this is how inflation works. But what does it have to do with your life insurance and Critical Illness cover?


Inflation could mean your insurance payout isn’t enough for your needs

Imagine you’d taken out a life insurance policy in 1987 for £100,000 and you’d died in 2008.

That £100,000 cover probably represented how much your loved ones would have needed to maintain their lifestyle at that time, taking into account your salary, your outgoings, and the cost of goods and services.

If you died in 2008 and the policy paid out £100,000, that may be nowhere near enough for your loved ones’ needs at that time.

In simple terms, they would only have been able to buy half the amount of milk as they could in 1987.

If you think about how the cost of all the other expenses has risen during that time, it’s likely your family would need significantly more to maintain their lifestyle in 2008 then they did in 1987. So, while the payout may be welcome and provide support, it might not be enough.

While the amount of protection you want may seem like a healthy sum today, 10, 15, or 20 years from now you may well find that the lump sum your dependants receive may not be enough for them to pay their bills and other outgoings and maintain their standard of living.

This is why taking inflation into account is important when it comes to your protection.


Indexation can help you to maintain the right level of cover

If you want to ensure that you’ll always have a suitable level of protection, even taking the effects of inflation into account, you should consider something called “indexation” when you take out your cover.

Many life insurance providers offer an indexation option. This allows you to increase the amount that your plan covers each year in line with rises in the cost of living. Your premiums – the amount you pay for cover – will typically also rise by a small amount each year depending on the prevailing rate of inflation.

Your premiums and the amount covered under your plan will normally be linked to one of the official measures of inflation. This could be the:

  • Retail Price Index (RPI)
  • Consumer Price Index (CPI) or Consumer Price Index including Housing (CPIH)
  • Average Earnings Index (AEI).

The main benefit of including indexation when you take out protection is that you can be sure that your cover will increase in line with the cost of living every year. The value of your payout should maintain its value in real terms irrespective of how far into the future you make a claim on your policy.

It ensures that you or your loved ones will benefit from a payout that keeps its value, even if the cost of goods and services has risen sharply since you originally took out your cover.

If you want to include indexation on your life insurance or Critical Illness policy, you will normally have to specify this when you take out the cover. Most providers won’t let you add this at a later date, so it’s important to mention it when you take out your plan.

While you typically can’t add indexation further down the line, you can opt to stop the indexation in the future. If the rise in premiums becomes too much, and you’re worried about the increasing cost of your cover, you can generally opt to cancel the indexation at a later date if you want to.


Get in touch to find out how we can help you

Including indexation on your Critical Illness cover or life insurance can help you to protect the value of your payout in real terms. It can ensure that the payout is sufficient to cover you or your loved ones need even if the claim happens decades into the future.

As life insurance and Critical Illness experts, we can help you to find the right protection for your needs. We work with dozens of the UK’s leading providers to help you find the cover you need at the right price.

If you want to include indexation to protect the value of your payout, we can certainly assist you with this. We can scour the market to compare life insurance quotes and find the policy that offers the most suitable indexation option for your needs.

Other benefits of using I’m Insured include:

  • We take a lower commission from the insurers we work with so we can pass this saving on to you
  • Our experts have wide experience in working with people who have pre-existing medical conditions. If you have experience physical or mental health issues in the past, we can help find an insurer that will provide the protection you need
  • We can help you to put your plan into trust if you want to
  • We scour the market to ensure you’re getting the best price possible for the cover you need.

Getting a quote for life insurance or Critical Illness cover is easy. Just input your details on our website and we’ll provide you with a quote. If you’re looking to include indexation, just get in touch with one of our experts and we can make sure this valuable additional benefit is included with your cover.



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