Funeral expense insurance is a long relationship: a sum that looks adequate today may fall short years from now. Indexation is the answer to this problem – and products handle it in surprisingly different ways.
- With indexation, the sum insured – and typically the premium – rises each anniversary, so that cover keeps pace with prices.
- There is an automatic version and an annually offered, declinable version; the rate is typically tied to inflation.
- Declining the increase year after year quietly erodes the value of the sum – a review, when it's warranted or you ask for one, catches this.
Why is this needed at all?
Funeral costs rise along with service fees and material prices. Over a decade, the gap can become significant – the sum that would cover the farewell today might only cover part of it by the twentieth year of the policy. Indexation is designed to prevent this quiet loss of value.
The landscape of solutions
Several models exist in the market. With some products, the sum insured rises automatically each year – sometimes even while the premium stays unchanged. With others, the premium rises automatically, and the sum insured follows it, but to a lesser degree. And with others still, the insurer offers an increase each year, which the policyholder can accept or decline in writing – the rate typically tracks inflation, with some products setting a fixed minimum. The same word – "indexation" – can mean quite different things from product to product: I show this line by line in the comparison.
What happens if you decline it?
Skipping a single year is not a disaster. The problem is when declining becomes a habit: the sum falls a little further behind prices each year, and the gap grows unnoticed – while the policyholder reasonably believes "everything's fine, I'm paying my premium." With some products, repeated declines can carry further consequences. That is why it is worth checking, when the renewal notice arrives, where the sum insured stands against reality.
Surplus returns: quiet help
With products that build a premium reserve, the insurer typically credits a set share of the return earned on that reserve – this can increase the sum insured without raising the premium. The rules vary by product, and with some, the credit only applies together with the death benefit payout. This is not an investment promise – it simply means it is worth knowing which part of the product is working for you.
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