What is Indexation? Why Indexation is Your Life Insurance’s Secret Superpower

Let’s face it, life is unpredictable. That’s why insurance is so important – it’s our safety net when life throws a spanner in the works. But here’s something you may not have thought about: how to make sure your safety net is as strong as it can be, even as the economy ebbs and flows.

The secret? It’s all about something called indexation. When it comes to insurance, indexation is a bit like upgrading your safety net to a trampoline. It gives your policy a boost so that it keeps up with life’s ups and downs.


What is Indexation in Relation to Insurance?

Think of indexation like an insurance policy booster. It’s a special feature you can add to your policy that makes sure its value doesn’t lag behind the rest of the economy, even as inflation rises.

In simpler terms, if you have a policy that’s index-linked, the amount you’re insured for goes up a little bit each year. This rise could match inflation or a fixed percentage – whatever is stated in your policy. This means your payout should buy just as much in 10 years as it can today, ensuring your policy works like the investment account it’s supposed to, and not just like a savings account with no interest.


What is Inflation?

Recently, you will have likely heard the term “inflation” thrown around everywhere you go. It sounds like a complicated term, but it’s just a fancy way of saying that prices for things we buy – like food, clothes, or fuel – are going up. For instance, if inflation is at 2% this year, something that costs you £100 now will cost about £102 next year. So, over time, the same amount of money buys you less and less. That’s inflation for you, always nibbling away at the value of our money.

It, unfortunately, gets worse when we put this in real-world terms. Why? Because inflation is at an all-time high at a huge 11.1%, as of April 2023. That means something that cost you £100 a few years ago will now cost you £111.10. That’s the main reason you will have certainly seen all your bills go up. It’s also the reason why our money doesn’t go as far, even when we get a raise.


How Does Indexation Work?

Alright, let’s break down how indexation works. As we just talked about, things have been getting expensive. But imagine that, instead of what most of us experience as our reality, all our income (whether it be from work, side jobs, businesses, investments, or pensions) also rose by 11.1% – without us having to lift a finger.

We wouldn’t all be feeling the pinch, would we? Our lives and our buying power would be the same as they were years ago. That’s what indexation does for your insurance policy – it raises the amount of money your life insurance will pay out to keep the value the same in line with inflation.

Every year, indexation tweaks the amount you’re insured for, keeping it in step with a recognised index (like the Consumer Price Index) or a fixed percentage agreed in your policy. For a life insurance policy, this means the payout your loved ones would receive grows over time, maintaining its “buying power” even as the cost of living goes up.


Effect of Inflation on Different Types of Policies

Now, let’s talk about how inflation plays with different types of insurance policies.

For term life insurance, which lasts for a specific period (say, 20 years), inflation can be a serious hindrance. For example, If you bought a policy worth £200,000 today, that amount will certainly not go as far in 20 years, thanks to rising costs.

Whole life and universal life policies last for your entire life and often come with a savings or investment component. These policies may offer ways to offset the effects of inflation, especially if they’re index-linked. But, they’re like first-class seats of policies, typically much more expensive than term life insurance.

Each policy type has its pros and cons, and inflation impacts them differently. It’s all about finding the right fit for your lifestyle and financial goals. And remember, an insurance advisor can help you weigh your options and choose the best policy for you.


Are All Life Insurance Policies Index-Linked?

Just like not all cars come with heated seats, not all life insurance policies come with index-linking. The more straightforward term life insurance policies often keep the payout, or “death benefit”, the same no matter what.

But here’s the good news: index-linked policies are becoming more common, especially with whole-life or endowment policies. Usually, it’s an optional extra – like choosing to add coloured ambient internal lights when you order a new car. You need to opt for it when you first get your policy (or, sometimes, at the annual renewal), otherwise, you won’t get the benefits.


Do You Have to Have an Index-Linked Life Insurance Policy?

No, but it is definitely handy. Without indexation, your policy will certainly lose its luster over time due to inflation. So if you want to make sure your policy gives your loved ones a solid payout, even decades into the future, then index-linking is a smart idea. It’s all about ensuring your safety net keeps its strength, no matter what the economy is doing.


Comparison with Non-Indexed Policies

At this point, you may be wondering why anyone would choose not to have an index-linked policy, so let’s compare index-linked policies with their non-indexed siblings. You can think of non-indexed policies like a sturdy bicycle – reliable, with a fixed benefit that doesn’t change over time. You pay your premium, and if anything happens, your loved ones get a fixed payout, simple as that.

On the other hand, an indexed policy is more like a car with cruise control. It adjusts the payout, so it keeps pace with rising costs. This means that, over time, the amount your loved ones will get is likely to be higher than with a non-indexed policy. But remember, just like a car is pricier than a bike, index-linked policies come with higher premiums. The best one for you depends on your budget, financial health, and your family’s future financial needs.


How Do I Know If My Insurance Policy Is Index-Linked?

Want to know if your policy has this index-linked superpower? The best way to find out is by checking your insurance policy documents. It’s like reading the ingredients list on a food packet – the details will all be there, they’re just a bit boring to wade through. If your policy is index-linked, it’ll clearly state how the indexation works and how much the insured amount will increase each year.


Should My Insurance Policy Be Index-Linked?

As we touched on earlier, whether or not your insurance policy needs to be linked depends on your budget, general financial health, and your family’s future financial needs.

If you want a one-and-done answer, then yes, we recommend having an index-linked insurance policy.

If you want a more considered answer, then here’s what you should consider:

  • Can you afford the premium on an index-linked insurance policy?
  • Do you have other savings or assets your family would inherit? If so, is it worth paying more for an index-linked policy, or less and having a non-index-linked policy as a bonus?
  • Will your family need the money if/when you pass? Some people buy life insurance to ensure their loved ones get some money to enjoy when they pass, regardless of their personal financial health. But for some, such as parents that are 30-50 with young kids and are the sole breadwinner, the life insurance policy may be to ensure lives can continue as normal if the worst was to happen. If that’s the case, then an index-linked policy may prove more beneficial.

It’s important to weigh up whether the extra cost now is worth the extra coverage later. If you’re unsure, it might be a good idea to chat with an insurance advisor – our friendly team are independent advisors and will be happy to chat with you for as long as necessary to ensure you come to the right decision.


What Should I Do If I’m Not Happy With My Life Insurance Policy?

If you discover your current life insurance policy isn’t (or is) indexed, and aren’t happy with it, don’t worry, you’re not stuck with it. You can start shopping around and find a policy that suits you better. Our independent insurance advisors are like (free!) personal shoppers for insurance and can help you understand what options are available and which policy best suits your needs. You can click here to learn more.


Final Thoughts

So, there you have it. Inflation and indexation might sound like boring topics, but when it comes to life insurance, they’re like the villain and the hero – one making your policy weaker, and one ensuring it stays healthy, no matter what.

If you’re feeling a bit overwhelmed or are not completely happy with your current policy, don’t worry. That’s what we’re here for. As independent insurance and mortgage advisors, we can help you find the perfect fit. So, reach out to us – let’s make sure you have a policy that gives you the safety net you need, no matter what life throws at you. Click here to get started.


Is it Time To Review My Life Insurance Cover?

With pretty much every other type of personal insurance, like home insurance or car insurance, you are required to renew every year and it is likely that you will take some time to look around at your options so that you can ensure you are always getting the best deal.

A life insurance policy is a little different as they typically last for about 20 or 30 years (or more) so many people set up their life insurance and forget about it. However, by doing this you could end up under- or over-paying for your policy and you may no longer have the coverage you really need.

Like all other types of insurance, it is a good idea to review your life insurance policy each year, especially if you have been through any life changes. So, when should you review your life insurance policy and what changes do you need to be making?

6 Reasons to Review Your Life Insurance Cover

1. Change of Circumstances

Over the coverage period of a life insurance policy, a lot can change in one’s life. Twenty or thirty years is a long time!

No matter who you are, there will be changes to your life and circumstances that will affect your life insurance policy. Yes, there will be years where there will be no major changes, but it is important to review your policy regardless, just so that you can always have peace of mind.

Although minor changes of circumstance may not affect your life insurance policy, there are several major changes that are likely to have an effect. These include, but are not limited to:

  • getting married
  • moving house
  • having or adopting a child
  • a change of occupation
  • taking retirement

All of these can bring drastic changes to your life, but it is important that your life insurance policy is not forgotten about, and you look to adjust your policy accordingly.

2. Changes to Debt

Changes to the amount of debt you hold will make a difference to your loved ones if they are on a fixed income. If you have a fair amount of debt, it will be difficult for your family to pay off and so you need to make sure that they receive enough from your life insurance policy to cover these costs.

Conversely, if you have successfully become consumer-debt-free since you first took out your life insurance policy (congrats!), you may now find that you are overpaying for an amount of cover that you no longer need.

For this reason, it is recommended that you consider your yearly budget when reviewing your life insurance policy each year so that you can determine whether you have the best level of cover for your financial situation.

3. Children

If you have young children, you most likely considered whether your life insurance policy would be enough to cover the costs of childcare, but did you think about the future as well? You might want to think about increasing your policy amount to cover future costs such as driving lessons and further education costs.

It is also important that you review and update your life insurance policy if you welcome a new little family member as your expenses are likely to increase. Conversely, if your children have since become young adults, you may not need quite as much cover and so can reduce your costs.

4. Increasing Funeral Costs

Over time, your life insurance policy benefit will stay at the arranged figure, but with consistent inflation, it will need to change to keep up with increasing costs, especially when it comes to helping your family cover funeral costs.

Many people take out life insurance so that their families will not be required to find the money needed for their funeral. However, if you never review your life insurance policy, you may find that your funeral costs are not covered as you intended, leaving a financial burden on your family.

According to British Seniors, the average cost of a funeral has been steadily rising since 2016 and this trend is likely to continue. In 2016, the average cost of burial was about £5,631 but now, even with the same funeral choices, you can expect to pay somewhere around £7,500 or more. So, it is clear to see that it is vital to make sure your life insurance policy keeps pace with inflation each year.

5. Change in Health

Another good time to review your life insurance cover is if you have experienced a change in health, whether it be for better or worse.

If your health has worsened since taking out your policy, you should look at increasing your coverage or taking on additional coverage. Just be aware that a new policy is likely to cost you more if you have a health condition, so you may choose to stick with your existing policy. Either way, review it and think about what you want to do, and if you need advice our team will be happy to talk you through the decision.

On the other hand, if your health has improved since taking out your life insurance policy, such as losing weight, quitting smoking, or taking control of a health issue, you could get a better rate and will therefore be able to get a lower premium. You will find the same thing applies if you leave a job with a high risk, such as roofing, or stop taking part in dangerous hobbies, like mountain climbing.

6. The Start of a New Year

If you haven’t experienced any major changes in your life, you shouldn’t need a better reason to review your life insurance than a new year!

A new year is a perfect time to take a look at all your finances and future plans, and that can definitely include your life insurance cover. It just takes 5 minutes to glance over your policy and check that it still meets your needs and that all your details are correct. It’s important to remember that certain wrong information may void a policy, so keep it up to date with accurate information.

So many people aren’t sure what cover they have and just allow the automatic payment to go out every month, so make sure you’re checking in annually so you’re familiar with your policy and can rest assured that all your information is correct, should the worst happen.

Make Sure You’re Getting the Best Deal

By taking the time to review your life insurance cover annually, or after a major life change, you can ensure that you have the right amount of cover at the best rate for you. At Red Star, we can help you find the right life insurance for you so that you can be sure your family will be taken care of financially when you pass. If you have yet to set up a policy or if you’re unsure if your policy is covering you correctly, a member of our friendly team will happily talk you through your options and ensure you have the right coverage at an affordable price point. To find out more or to reach out to us, click here.

Insuring High-Value Items: One Policy or Multiple?

Are you certain your contents insurance offers enough cover for your high-value items?

All contents insurance policies have a limit on how much your insurer will pay out for a single item unless it has been listed specifically. If you haven’t listed it separately, and you suffer loss or damage to something that has a high-value, you will very likely discover that the full replacement value is not met.

Very few people actually read their insurance policies carefully. If you haven’t, you may be surprised at how low the maximum single item pay-out is if you haven’t carefully detailed your high-value items and ensured they are sufficiently covered.


What counts as a high-value item?

Many insurance companies cap the individual item cover at £1,500, or even as low as £1,000. This means it’s very easy to under-insure an item in your home.

The most common items that fall into this category are luxuries and tech equipment such as:

  • Jewellery
  • Precious metals (such as cutlery)
  • Antiques
  • Paintings and prints
  • Collections
  • TVs
  • Computers
  • Top of the range cameras
  • Sporting equipment
  • Musical instruments
  • Smartphones
  • High-value tools and equipment for hobbies


What high-value items does my contents insurance cover?

When you purchase your contents insurance, you have the opportunity to list any items that are of high-value.

Provided you give detailed descriptions of each individual high-value item you own, most insurance companies will cover those up to a predetermined value. This value will depend on the level of cover you purchase.

If you have items that would cost a lot of money to replace, you insurance premium will rise to reflect that. The insurance company may also ask for proof of the value of some high-ticket items and will need to see an official valuation document.

In many cases, the level of security you have for your home will also impact your premiums, so if you have antiques or collectibles, ensure you have a good security system in place.


Should I insure expensive items separately?

In most cases, you will not need to insure expensive items separately.

In fact, in many cases it will cost you less overall to simply include these items in your home contents insurance policy.

You should, however, double check that the cover for your items is sufficient. Some policies will give you unlimited cover, while others will set a limit for a single item. If this limit is £1,000, you’re likely going to need to look elsewhere for cover that has a higher limit. However, many people will find a limit of £2,500 or £5,000 sufficient, so make sure you get a level that’s right for you.

You will need to examine potential policies carefully to ensure you get the one that best fits your needs in terms of cover and price.

That’s not to say that you will never need specialist insurance. If you collect numerous high-value items, you may need an additional policy or to look to a specialist insurer.


Can I get a specialist home contents policy?

While the easiest way to insure your high-value items is within your standard contents policy, if you have many expensive possessions it may be worth looking at the specialist policies offered by many providers. Most people either choose to:

  • Buy a separate specialist policy for those items
  • Purchase estate insurance (or High Net Worth insurance), to encompass everything on your property.

Which is best for you will depend on what you own and its value. For example, if you’re an avid photographer and buy all the new technology, as well as vintage items, then a specialist gadget policy may be best for you.

However, if you have a large home full of antiques and art you’ve collected, estate insurance is essential.


I don’t know the value of a piece of jewellery/furniture/collectable, should I get it valued?

Yes. Unless you are an expert, knowing the true value of an object is notoriously difficult. It is easy to under or over-estimate the value of something in our possession. Even if you are well-informed, you should get a second opinion and a written evaluation by a professional.

This will give you peace of mind that you are not over or underinsured, as well as offering proof of the value to your insurance company should they need it.

Also note that valuations need to be recent; a valuation from 10 years ago will no longer be accurate. Depending on the item(s) you own, try to have them valued every 1-3 years, even if you never plan to sell them.

This is important regardless of whether your possessions are covered within your contents policy, or within a separate one.


What should I do to ensure my items are covered?

  1. Read your policy

Make certain you study your policy to ensure you understand exactly what is covered and for how much. No one likes reading small print but if you don’t want to be disappointed if you should have to make a claim you simply have to do it.


  1. Be open and honest with your insurer

Not being quite truthful with your insurer is a mistake. Often this is just an oversight on the part of the policy holder, but accuracy in description and value is paramount. Trying to keep your insurance costs down by undervaluing your possessions will only result in regret when you fail to get the money to replace the item that has been lost or stolen.


  1. Keep your policy up to date

Update your policy whenever you buy a new item or when you get a new evaluation. Make sure it’s the first thing on your to-do list when you return home with your purchase.

You should also check (and if necessary revise) you contents insurance each year. We often think that little has changed in a year, but if you do an itemised inventory every time you renew, you may well be surprised. The average value of a UK 3-bedroom home is £55,000, so don’t leave it to chance.


  1. Double check any limits on your insurance

It is common to be underinsured. Remember you need cover that would allow you to replace everything, from the knives and forks, to the floor coverings, to the masterpiece hanging on the wall. High-value items have a habit of increasing in value or costing more to replace, so always check your list, without fail.


Ensuring that your high-value items are properly insured is not difficult, but does require time and trouble to get right. Insurance may be seen as boring and something we hope we will never need, but disasters happen. When things go wrong, being able to replace what you have lost will significantly reduce the stress involved.

If you’re feeling overwhelmed, don’t worry. One of our friendly team members will talk you through your needs and guide you toward the right umbrella-style cover, or niche policies. We’ll search high and low to get you the very best deal, without sacrificing on your level or quality of cover. To get started or find out more, click here.

Home Insurance Renewal Time? 5 Reasons Why You Need to Review It

Is it time to renew your home insurance? While we’re usually all fairly good about getting the best quote for our car insurance (and getting that no claims bonus), most of us just let our home insurance renewal pass us by.

Why? Because the increase or decrease is minimal – often just a few pounds a month, and we don’t think anything has changed. Besides, searching for new home insurance takes a lot more effort because you need to review all your possessions.

In short, it just doesn’t feel worth the effort. But… it is. Your home insurance isn’t just about getting a cheap deal, it’s about ensuring your covered in case something awful happens, and home invasions, fires, and other natural disasters are among the worst. Here’s why you should take that extra few hours to review it. (Or work with a broker who can do it for you.)

Price Increase

More often than not, when your renewal date comes, you will notice that your insurance company has raised your premiums, despite no change to your policy. In fact, in the last 3 years, home insurance premiums have risen by more than 25%, despite no change.

About a month before your home insurance policy is due to end is the perfect time to look for quotes from other insurance companies. Using a price comparison website is good, but they really aren’t suitable for something as intricate as home insurance, especially when it can be catastrophic if you get it wrong.

A home insurance broker will help you compare different home insurance providers, including those that cannot be found on price comparison sites, and you can talk through exactly what type of cover you are looking for within your ideal budget.

Level of Cover

If you take the time to review your home insurance policy, you may find that the level of cover you are paying for is more or less than you actually need. You may find that you are paying an extortionate amount for relatively little cover, and you may discover that you can find more cover for the same monthly cost with a different provider. Even if you don’t think your premiums are too high for you to afford, it is important that you are getting your money’s worth, and you know exactly what you are paying for.

Changes to Assets

You may have undergone some kind of change to your assets during your policy that calls for a change to the cover you will need in your next policy. This could include selling something, buying a new valuable item, or carried out an important home renovation.

It’s crucial you disclose all information about your home and the contents as home insurance can become invalid if details are incorrect – essentially given them away to avoid paying you when you most need it. It’s horrible to think about, but it does happen.

Changes to your assets may cause an increase or decrease to your home insurance premiums depending on the change that has been made, but an insurance broker can help you to determine all of the assets you need to be covered by your policy while finding the best price for you.

Customer Service

When it’s time for renewal, it’s also a good time to think about the quality of customer service of your current home insurance provider. If you had to deal with them at any point throughout the year, did you have a positive experience? Was it easy to get in touch with them? Did you feel comfortable talking to the representative? How was your problem dealt with?
If you found that you did not get the support you expected, this is a red flag that they are not the home insurance provider for you, and you should start looking at other options. Now, you may not be able to gauge their quality of customer service if you have never had to contact them (which is a good thing!). In this case, it can be beneficial to take the time to look online at customer reviews. Things can change in a year, so it’s worth taking a quick look at recent reviews.
If you work with a home insurance broker, they’ll be able to advise you on which home insurance providers have the best reputation with customers so that you can always get the best service.

Changes to the Insurance Provider

Not only is it important to review your policy, but you should also take the opportunity to review your insurance company as a whole. Some insurance companies will increase the prices of any additional fees they may ask for on top of your policy, such as home emergency cover and legal expenses cover.

They may do this by changing a few figures in your policy documents, so compare important figures from your last policy with your new one. This will ensure you aren’t hit with something you didn’t have to worry about when you signed up with them, but has since come into effect.

Comparison sites do not show all possible home insurance providers and are extremely time-intensive as you enter all your possessions just to get a quote. A home insurance broker will look at every possible option and even be able to find providers that offer specialist cover, should you need it. When you use an insurance broker to find your next home insurance policy, you will get expert advice to find the policy that best suits you and your home at the best possible price.

How to Find the Best Home Insurance: 5 Steps to Ensure You Get the Best Deal

Buying home insurance is something you should never take a risk with – while the policies are relatively cheap to maintain, the wrong cover could leave you seriously out of pocket. And, as you’ll know if you’ve ever known someone who’s had a break-in, fire, or another home disaster, the financial support of your insurance is vital in such a difficult time.

So, how do you go about finding home insurance that provides you with all the necessary cover and is also the best deal? Simply put, by using an insurance broker. Here are 5 steps you can take to ensure you get all the cover you need at a price you love:

Step 1: Make a List

The first thing you should do, even before you look at insurers, is make a list of all the major items you need to insure. You need to know how much it would cost to replace each item should you need to make a claim as a result of theft or damage. You should pay special attention to items like jewellery, electronics, antiques, and anything else that has value to you (Here’s an article that will help you make your list).

By having this list ready to go, you’ll be able to talk through the different aspects of your policy, and your insurance broker will be able to tell you if a standard home insurance would be inadequate for a particular item.

Step 2: Compare Policies

Now you can start the process of searching for the right policy. Most of us are only going to consider two ways of doing this: online or on the phone. While online comparison sites are often fine for a new car insurance policy, they need to be avoided when buying home insurance. Besides the fact that you often get overloaded with phone calls within five minutes of entering your phone number, you aren’t likely to get adequate coverage.

This article posted by Which? Money in December 2019 explains that comparison sites often ask a lot of questions when you are looking at home insurance policies but not often the right ones. Your best option is to call a broker so you can take your time, and they often have policies that will be better suited to you but aren’t easily accessible by the public.

Step 3: Choose a Policy that Suits You

Your broker will guide you through your options and will ensure that you choose a policy that emphasises what is most important to you without breaking the bank.

Step 4: Double Check

Once you have chosen a potential home insurance policy, the next step is to double check that it covers exactly what you need it to. If you are on the phone with an insurance broker this is simple, as they will be able to run through it with you and clarify anything if you need them to so that you can be sure you will get exactly what you need from a home insurance policy. If, however, you decided to find a policy online it is vital that you carefully read through the fine print on your potential home insurance policy in detail.

Step 5: Confirm and Purchase

Now that you know you have found the best home insurance policy for you, you can move ahead with your purchase. When you use an insurance broker, they will be happy to talk to you for as long as you need, regarding any questions or concerns you have regarding your new home insurance policy so that you can make the purchase, worry-free.

The safest way to buy your new home insurance policy is by using an impartial insurance broker who will be able to find you the best deal without applying any pressure to get more than you need. If you are looking for home insurance, we’d love to help you find the cover you need. To find out more about how we can help, click here.