Noticed the monthly insured benefit increasing in line with indexation at a client’s recent policy anniversary?

Ensuring your client’s monthly insured benefit is keeping pace with the rising cost of living has arguably never been as important. For many, benefit indexation would have been built into the terms of the IP contract at policy commencement.
 

Legacy IP policies may index the monthly benefit by the higher of CPI and 3%, whereas current on-sale IP contracts may index at the rate of CPI only.
 

Importantly however, with current IP contracts being indemnity only, it is also worth remembering that benefit indexation must also coincide with the client having the adequate income to support the benefit (including the benefit indexation).
 

The following table outlines the annual change to CPI over the past four financial years, noting the RBA is forecasting inflation to reach 7.75% by calendar year end.

NIn the table below we set out the annual premiums assuming the monthly insured benefit is being indexed at a CPI rate of 7% pa. The illustration is for an AIA Income Protection CORE policy, 42 year old male (NSW, non-smoker, Accountant – Occupation A1) earning $150,000 per annum with stepped premiums.

In Year 2, the monthly insured benefit is indexed by 7%, resulting in a net after tax premium increase of 7.05% or 7.46% in stepped premiums for the ‘To Age 65’ and 5 year Benefit Period structures, respectively.

Peace of mind for you and your client that their monthly insured benefit is keeping pace with surging cost of living pressures that are not expected to abate anytime soon.

Reach out to your local AIA Client Development Manager or Associate for more details.