Index-linking in case of life insurance is a process by which the change in the value of money is calculated over the years. Index- linking results in a consumer price index (CPI) which is the numeric presentation of the change in the value of a particular amount of money that we assume was the lump sum cover for a particular life insurance activated a long time ago.
What is an Index Linked Insurance?
Index-linked insurance takes into account the consumer price index while calculating the amount of lump sum that the insurance pays out. This type of life insurance does not pay out a fixed value but pays out a consumer price index integrated value.
There is only one benefit and one drawback of index-linked life insurance. The maturity value reflected is the actual amount of money intended rather than the exact amount of the initial lump sum assured. However, the annual value of the premiums also changes concerning the CPI.
Are all Life Insurances Index-linked?
Index-linked life insurances are an option rather than the default as index-linked insurance can be a complicated affair to understand. Index-linked insurance does not pay out a fixed value of maturity benefit but the value fluctuates depending on the current market rate. The second catch to Index-Linked Life insurance is that not only does the value of the lump sum increment depending on the change in money value but also does the value of the monthly premiums.
How to index link life insurance?
You have the option to opt for your regular life insurance to be made index-linked any time you want, for any given length of time. Of course, opting for or out of index-linked insurance involves a lot of calculations to be made but the option is always available.
The advantage of having index-linked life insurance certainly weighs out the disadvantages coming with it and keeps you insured with a decent value of money that provides you with good security even with the constantly changing market values.
We would recommend you to talk to one of our advisers for life insurance quotes.
Any quote that your adviser provides you with will take into account your circumstances, your medical history, as well as your budget!
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