Is It Worth the Cost?

10-second summary: Indexation increases your life insurance cover each year to keep pace with inflation. It also increases your premium. In some cases it makes sense. In others, it quietly becomes expensive. The right answer depends on your income path, your mortgage, and how many years of earnings you still need to protect.

What Is Life Insurance Indexation?

Indexation increases your sum assured each year, usually by 3%, to protect against inflation.

But your premium increases too, usually at a higher rate

€100,000 cover → €180,000 after 20 years
€100 per month → €219  per month by year 20

So, Choose the Lowest Indexation Rate?

New Ireland increases both cover and premium by the same 3% so, on paper, that looks cleaner than 3% cover and 4% or 4.5% premium elsewhere.

But New Ireland often starts from a higher base premium.

So you can’t just look at the percentage increase and assume they’re cheaper over time.

You have to look at:

The starting monthly premium.
The annual increase rate.
How long you plan to keep the policy.

In some cases, a policy that starts cheaper but increases slightly faster can still work out better over 15 or 20 years.

In other cases, the higher starting premium with equal increases makes more sense.

That’s why this isn’t a headline decision.

You have to run the numbers properly.

Why The “You Need More Cover Later” Argument Isn’t Always True

Life insurance is there to replace your income if you’re not around.

If you’re 40 and plan to retire at 65, that’s 25 years of wages your family would lose.

If you’re 55, it’s only 10 years.

That’s a big difference.

As you get older:

Your mortgage should be smaller.
Your kids are closer to standing on their own two feet.
You’ve hopefully built up some savings or pension.

So yes, inflation means €500,000 today won’t buy the same in 20 years.

But at the same time, the number of years your family would need that money is shrinking.

Inflation pushes the need for a higher payout, but fewer remaining working years pull the required cover down.

That’s why indexation isn’t automatically right or automatically wrong.

It depends on your stage of life and how quickly your income will increase over time.

When Indexation Can Make Sense

If you’re early in your career and your income is rising quickly, indexation can be sensible.

If inflation is structurally high, doing nothing means your cover gradually loses purchasing power.

Those are fair arguments.

When It Becomes Expensive Without You Noticing

Premium creep is real.

The increases feel small in the early years because three percent doesn’t sound like much.

And remember, you’re not just increasing cover, you’re increasing your direct debit to pay for your increasing cover.

Later in life, when income growth slows and other financial priorities appear, that rising premium can start to feel uncomfortable.

Not All Insurers Treat Indexation The Same

Most Irish insurers increase the cover by 3% per year.

However, most increase the premium by more than 3%.

That difference matters over long periods.

This is why the provider choice matters if you’re planning to keep indexation switched on long term.

Indexation Is Not The Same As Index-Linked Investment Policies

Some people confuse indexation with index-linked reviewable life insurance.

Indexation simply increases your guaranteed sum assured each year.

Index-linked or unit-linked policies tie benefits to investment performance.

If you’re unsure which you have, check your policy schedule.

There’s Another Way to Deal with Inflation.

I no longer dismiss indexation as quickly as I might have years ago.

High inflation reminded everyone that money today will not be worth the same in twenty years.

If you want to build in protection against inflation, do it with eyes open and with a clear understanding of how the premium evolves.

But there is another way:

Instead of relying on annual increases, you can simply buy more cover than you think you need at the start.

If you’re young and healthy, premiums are at their lowest – that’s when life insurance is good value.

Lock in a higher level of cover today, at a lower age-based premium, without adding indexation.

That way:

You know exactly what you’re paying every month.
There’s no creeping increase.
And you’ve already built in a buffer.

I still believe this is often the cleaner strategy for younger clients.

You secure strong cover while you’re healthy.
You lock in the price.
And you avoid committing to compounding premium increases for the next twenty years.

Indexation can work, but overbuying slightly at the start and fixing the premium is usually simpler and more predictable.

One Important Application Point

If you have a medical history, focus first on securing the correct type of cover with the right insurer.

Indexation is a secondary design choice.

The order matters.

Getting accepted at the correct rate class with the right insurer is more important than whether you tick the 3% increase box.

What Should You Do?

If you’re early in your mortgage and your income is growing, indexation can be reasonable.

If you’re closer to retirement or already heavily insured, it may not add much value.

If you’re unsure, we can look at both options properly rather than guessing.

The mistake isn’t choosing indexation, the mistake is choosing it without understanding what it will cost you over time.

Complete our financial questionnaire and we’ll assess what level of cover makes sense for you.

If you prefer to talk it through first, you can book a time that suits here: Schedule a call.

Editor’s note: First published in 2017. This update in 2026 to reflect current Irish insurer indexation rates and recent high-inflation conditions.