An annual premium or benefit increase based on the Consumer Price Index (CPI), Australia's official measure of inflation. CPI adjustments ensure insurance coverage and premiums track with the general increase in prices and cost of living across the Australian economy.
A CPI adjustment is an annual increase to your sum insured or benefit amount linked to the Consumer Price Index, Australia's official measure of inflation. It is the most common form of indexation used in life, TPD, trauma, and income protection policies.
| Feature | CPI adjustment | AWOTE adjustment | |---|---|---| | Tracks | General price inflation | Wage growth | | Common on | Life, TPD, trauma, IP | Some income protection benefits | | Tends to be | Lower over time | Higher when wages outpace prices | | Best for | Maintaining purchasing power of a fixed sum | Aligning IP benefits with salary growth |
CPI is appropriate for needs-based cover (life, TPD, trauma) where the goal is preserving real value. AWOTE suits cover designed to track earnings.
Level premium policies still receive CPI-related premium increases, even though they are free of age-based increases. The 'level' refers to age-based step-ups, not CPI. Consumers sometimes expect truly flat premiums and are surprised by CPI movement.
CPI adjustments are critical for policies held over 20 to 30 years. Without them, cover erodes substantially in real terms. Australian consumer protection law requires insurers to disclose that CPI adjustments are automatic but optional: you can decline each year's increase if cover already exceeds your needs.
During 2022-2023 when Australian CPI reached 7.8%, insurance policies with CPI adjustment saw coverage increase from $600,000 to $646,800 and premiums rise from $165 to $178/month, reflecting high inflation
A retiree maintaining life insurance to age 99 sees their $300,000 coverage CPI-adjusted over 25 years to $558,000, ensuring beneficiaries receive meaningful purchasing power despite decades of inflation
An income protection policy with a $5,500 monthly benefit experiences CPI adjustments averaging 2.5% annually, increasing benefits to $6,000/month after eight years, helping keep pace with salary growth and living costs
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