Inflation proofing, also known as indexation, is a feature included in a number of MLC Life Insurance policies. For policies with this feature in place, we’ll automatically increase your sum insured each year on your Review Date to take inflation into account. This increase is designed to make sure the value of your cover isn’t eroded by the impacts of inflation.

What is inflation?

Inflation is a general increase in the price of goods and services over time. With inflation eroding purchasing power over time, it's important to ensure that your life insurance cover keeps pace with rising costs. Inflation proofing is one way of doing this.

How does indexation work?

Indexation works by taking into consideration the Consumer Price Index (CPI) – a group of statistics tracking how much Australians pay for everyday goods and services and how these prices have increased over time.

As the cost of living increases each year, the inflation proofing feature on policies works to make sure your sum insured keeps in step with these rises. It’s a way of making sure that if you were to make a claim on your policy, the money you’re paid out continues to have the same buying power year on year.

For example, if you needed $50,000 to meet the cost of living today, but next year you needed $52,500 to meet the same costs, then the cost of living has increased by 5%. If you apply this same principle to your insurance, you’d increase your sum insured by 5% so that if you need to make a claim, your benefit won’t fall short of your needs.

To understand how inflation proofing applies on your insurance, please refer to your Product Disclosure Statement (PDS) or policy document. In these documents, you’ll find the indexation rate relevant to your policy.

It’s also worth noting inflation proofing isn’t available on all policy types and there are also some instances where you can choose not to include this feature on your policy.

Choosing to accept (or decline) indexation

If inflation proofing is included as part of your policy, there’s nothing you need to do to accept the increase. However, indexation is optional, so you get to choose whether it’s applied.

Unless you’ve elected to turn off the feature, each year we’ll write to let you know the change to your sum insured after indexation, the increase to your premium, and when the change comes into effect. If you’re happy to accept inflation proofing for the year ahead, there’s nothing you need to do.

If you choose to decline the offer in any given year, simply let us know via the Customer Portal within the two months following your Review Date. Your financial adviser can also decline indexation on your behalf via the Adviser Portal, or you can contact our team who can help action your request.

Why might someone decline indexation?

While indexation helps keep your sum insured in step with inflation, this may not be something you always need.

For example, if you’ve recently paid down debts or moved into a life stage where your everyday expenses are lower, you may not need as much insurance as you did when you took out your policy.

Let’s say you're living costs this year are $50,000, which includes mortgage payments and children living at home. Next year, your kids leave the nest, and you decrease the size of your mortgage, reducing your living expenses significantly to $35,000. In this case, you may not need to increase your sum insured. You may also choose to decline indexation on your policy.

Inflation is an important factor to consider when considering your life insurance coverage. By reviewing your policy regularly and considering inflation proofing, you can better protect your life insurance against the effects of inflation.

Remember, staying informed and working with a qualified financial adviser can help you navigate the complex landscape of life insurance and inflation, ensuring the financial well-being of your loved ones in the years to come.