Indexation

Indexation is the automatic annual increase to your sum insured or benefit amount, designed to protect cover from inflation. Each year, usually on your policy anniversary, the cover grows by the indexation rate and your premium increases proportionally.

Indexation benchmarks

Australian insurers typically link indexation to one of these measures:

• CPI (Consumer Price Index): general price inflation, the most common benchmark.
• AWOTE (Average Weekly Ordinary Time Earnings): wage inflation, used for some income protection.
• Fixed percentage: typically 3 to 5 percent annually.

The key benefit: no fresh underwriting

Indexation increases happen without medical underwriting or health assessments. This is the most valuable feature for long-term policyholders, because cover continues to grow even if your health has deteriorated since you applied.

Why indexation matters over time

Without indexation, a $500,000 sum insured today erodes substantially in real terms over 20 to 30 years. Indexation preserves the purchasing power of cover throughout your working life.

Your annual choice

You can decline the indexation increase each year if cover is already adequate or if budget is tight. Watch out for:

• Policies that terminate future indexation rights if you decline 3 years in a row.
• Whether opt-out requires written notice before the renewal date.
• The compounding effect of declining: small declines now meaningfully reduce cover over decades.

CPI vs AWOTE for income protection

Income protection benefit amounts indexed to AWOTE may rise faster than CPI in years of strong wage growth. CPI-linked benefits stay aligned with general price inflation. The PDS will state which benchmark applies.

APRA regulations require clear disclosure of indexation terms, rates, and opt-out procedures in policy documents.