CPI Adjustment

CPI (Consumer Price Index) adjustment is a specific form of indexation used extensively in Australian insurance to link coverage and premium increases to official inflation rates. The Australian Bureau of Statistics (ABS) publishes CPI quarterly, measuring price changes for a basket of goods and services representing typical household spending. Australian insurers use annual CPI figures (usually the March quarter or annual average) to adjust policies each year at the anniversary date. For example, if CPI increases by 2.8%, your sum insured might increase from $500,000 to $514,000, and your premium increases proportionally from $145 to $149/month. CPI adjustments apply to both lump sum coverages (life, TPD, trauma insurance sum insured) and ongoing benefits (income protection benefit amounts). Unlike wage indexation (AWOTE), CPI reflects general price increases across the economy rather than income growth, making it appropriate for needs-based coverage like life insurance where the goal is maintaining purchasing power of a fixed sum. Australian consumer protection laws require insurers to clearly disclose that CPI adjustments are automatic but optional - you can decline each year's increase. However, level premium policies still experience CPI-related premium increases even though they're not subject to age-based increases, which can confuse consumers who expect truly 'level' premiums. CPI adjustments are particularly important for long-term policies held over 20-30 years where inflation significantly erodes coverage value. Financial advisers emphasize that a $500,000 policy from 1995 would need to be over $1 million today to maintain equivalent purchasing power, demonstrating the critical importance of CPI adjustments for adequate long-term protection.