What is the purpose of an index-linked policy?

The purpose of an index-linked policy is to act as a hedge against inflation. These types of policies are designed to ensure that the benefits provided adjust according to changes in a specific index, often linked to the cost of living or inflation indices. This means that as inflation rises, so do the payouts from the policy, helping to maintain the purchasing power of the benefits.

By linking the policy's values to an index, policyholders can protect themselves from the eroding effects of inflation over time. This feature is particularly valuable in long-term policies where inflation can significantly diminish the value of fixed payouts.

In contrast, fixed premiums do not adjust to inflation, universal coverage refers to a type of life insurance that doesn't inherently address inflation, and limiting the benefit amount does not resonate with the intention of ensuring that the benefits keep pace with inflationary pressures. Therefore, choosing an index-linked policy is a strategic approach for individuals looking to safeguard their benefits against inflationary risks.