Should you keep life assurance with indexation?

UKPublished 6 October 2026 · Written by BuyMeWhiskey Editorial Team · How we check facts

Keeping life assurance with indexation can make sense when you want the insured amount to keep pace with rising costs, but it usually changes the premium too.

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Compare the current sum assured with the financial need it is meant to cover, then ask the insurer what indexation changes in both benefit and premium before deciding.

MoneyHelper: Life insurance

What indexation is trying to do

Indexation usually increases the policy’s insured amount over time to help preserve its real-world value. Without it, a fixed death benefit can buy less as costs and prices rise. The trade-off is that the premium can also increase. Whether that is useful depends on the reason for the cover. A policy protecting a fixed mortgage balance may need a different structure from a policy intended to support dependants for many years.

Review the need, not just the premium

The most useful question is how much money your household would actually need if you died. Consider the mortgage or other debts, childcare, education, ongoing living costs, dependants and other assets. A policy that has become unnecessary can sometimes be reduced or replaced, while a policy that is too small may remain inadequate even if its premium is cheap. Indexation is one tool for maintaining adequacy, not a goal by itself.

What if the insurer refuses cover?

If a new life-assurance application is refused or offered only on different terms, do not respond by applying to many insurers without advice. Multiple applications can create a complicated underwriting history, and some insurers may ask about previous decisions. A specialist broker can compare providers without assuming that one declined application means the market is closed. Never conceal a previous refusal or medical information that an application asks for.

Life assurance and annuities are different products

Life assurance pays according to the policy trigger, often death. An annuity converts pension savings into an income stream, subject to the annuity contract. Confusion can arise when consumers see large “advice fees” around retirement income. MoneyHelper explains that annuities can be bought with or without regulated advice depending on the route, and consumers should compare the total cost and whether advice is genuinely needed.

A fixed annuity can pay more than the purchase price

An annuity is priced on expected future payments, mortality assumptions, interest rates and the options selected. Therefore, a policy can pay a total of more than the original purchase price over the annuitant’s lifetime without being a fraud or a guaranteed profit. The insurer is pricing a stream of future payments and the risk of the person living longer than expected. Advice should explain the trade-off between income level, guarantees and flexibility.

Review old policies before changing them

Older life policies can have valuable terms, and surrendering or replacing them can create new underwriting and tax consequences. Ask for a current statement showing the sum assured, premium, term, indexation basis, exclusions and any surrender value where applicable. For an annuity, compare the income offered with the alternatives and the cost of advice. Do not cancel an old policy until a replacement is in force and the consequences are understood.

Worked example

Illustrative example: Imagine a parent has term life assurance that was originally designed to protect a mortgage and support two children. Years later, the mortgage balance is lower but the children are still financially dependent. The parent asks whether to keep indexation. Instead of comparing premium alone, the parent estimates the remaining household need and compares it with the current sum assured. If indexation would increase both the benefit and the premium in a way that matches the household’s need, keeping it may be sensible. If the need is falling faster than the policy rises, a review or reduction could be more appropriate. The example shows that indexation should be judged against the purpose of the cover, not treated as automatically good or bad.

Is index-linked life assurance worth it?#

It can be, particularly where the policy is expected to protect a household for many years and inflation could erode a fixed benefit. The trade-off is usually higher premiums as cover rises. Compare the current sum assured with the actual need and ask the insurer for the premium impact before deciding.

Does indexation increase life insurance premiums?#

It often can because the insured amount increases. The exact mechanism depends on the policy, and some products have different index measures or premium rules. Ask for a current illustration showing the benefit and premium over time rather than relying on the phrase “index-linked” alone.

What if I am refused term life insurance?#

Do not panic or start submitting multiple applications without a plan. Ask a specialist broker whether another insurer or a different policy type may be suitable. Be accurate about health and previous applications. A refusal can be based on underwriting criteria that differ substantially between providers.

Can I buy an annuity without paying for advice?#

The route depends on the provider and product. Some consumers can buy an annuity directly, while regulated advice can be valuable when comparing guarantees, spouse benefits, inflation protection and death benefits. MoneyHelper can explain the basic options. Compare the total cost of the purchase, including any advice fee, rather than assuming advice is compulsory.

Why can an annuity pay more than the amount invested?#

The purchase price buys a stream of future income, not a simple repayment of the original capital. Pricing reflects life expectancy, interest rates and the selected guarantees. Over a long retirement, total payments can exceed the original premium. That does not mean the purchaser is guaranteed a profit because the outcome depends on how long the income is paid and the contract terms.

Should I cancel an old life policy?#

Not until you know what you would lose and whether replacement cover is available. Old policies can have different underwriting, guarantees and premium structures. Request a current policy statement and compare the existing benefit with the new offer. Keep the old cover in force until the replacement is confirmed and the change is legally effective.

How often should life assurance be reviewed?#

Review it when major circumstances change: a new mortgage, children becoming independent, marriage or divorce, a large change in income or a change in existing assets. The aim is to keep the cover aligned with the financial need. A policy does not need replacing simply because a review finds that the existing structure is adequate.

Keep reading

Next question →Can HealthCare.gov change your plan if your income rises?

Sources

Figures were checked against these sources before publication. If a rule changes, we update the page and show the new date.

General information, not personal financial advice. Rules depend on your circumstances; check the official source or speak to a regulated adviser before acting.