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To link or not to link?

Did you know that most life insurance companies offer you the option of linking the amount of cover you have on your benefits to the Consumer Price Index (CPI)? This means that, for each year that the rate of inflation increases (indicated by the CPI), the amount of cover for which you are insured will increase at the same rate.

For example: If you take out life cover of $100,000 in the year 2014, and then claim on that cover in the year 2044, if your cover isn't linked to the CPI then you will still have only $100,000 (which is certain to be worth less than it is today).

However, if your cover is linked to the CPI, it would have increased to $242,700 had the CPI averaged 3% per annum over those 30 years. One thing to consider is that if your cover is linked to the CPI, your premiums will also be linked and will therefore increase each year that the CPI increases.