Would you pay nearly £10,000 more for your life cover and get no extra protection in return?

min read

That’s what happens with most index-linked protection insurance policies.

When you choose the indexation option, both your premium and your sum insured go up each year with inflation. It protects the real value of your cover.

But most insurers go further. They apply a 50% uplift to the inflationary increase in premiums while your cover only rises with inflation.

Why?

Some say it’s because each year’s increase is effectively new cover at an older age. From my own experience, there’s also selection risk. When premiums rise, healthier people may opt out, while those in poorer health are more likely to opt-in, resulting in a riskier pool.

Both reasonable points. But are they really enough to justify a 50% loading that compounds year on year?

On a £100 a month policy with 3% indexation over 25 years, the 50% uplift adds £9,727 to the total cost. And you get no extra real cover for it.

And here’s another clue: insurers pay higher commissions on index-linked policies. If this uplift were purely about adjusting for increased risk, should there be room to pay bigger commissions?

It’s hard to see how this delivers fair value.

That’s one of the reasons why, at Continuity Point, we work on a transparent, fee-only basis and do not accept commissions. It keeps our advice aligned with our clients’ interests, not with insurer incentives.

TL;DR: Indexation is meant to keep life cover in line with inflation. If cover goes up 5%, premiums go up 5%. Fair enough. But many insurers add a 50% uplift to the premium increase, so the cost compounds year after year while cover only rises with inflation. On a £100/month policy over 25 years, that’s an extra £9,727 with no extra real cover. The fact that insurers also pay higher commissions on these policies shows where the benefit really lies. At Continuity Point, we don’t take commissions. We charge transparent fees so our advice stays aligned with clients interests, not insurers' interests.