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How you can protect your accident benefits from inflation with the indexation benefit

April 8, 2022
3 mins
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Ontario drivers have plenty of options when it comes to picking and choosing the best insurance coverage for their needs. This is all the more important now that inflation hit a staggering 5.7% in February.

While it’s harder to safeguard things like your grocery and gas bills from inflation, when it comes to accident benefits, which is a mandatory part of your car insurance policy (unless you live in Newfoundland and Labrador), you do have some defences.

Comparing Ontario car insurance rates to make sure you’re not overpaying as inflation eventually hits the auto insurance industry is a great first step. But there’s also the optional indexation benefit, which can help your accident benefits keep up with inflation.

What is the optional indexation benefit endorsement?

The indexation benefit is an optional coverage you can purchase that provides an annual adjustment for inflation for certain accident benefits, which compensate you in the event that you are injured in a collision, regardless of fault.

Adjustments happen annually in accordance with the Consumer Price Index of Canada (CPI), and apply to the following benefits:

  • Weekly income replacement benefit
  • Weekly non-earner benefit
  • Attendant care benefit
  • Medical and rehabilitation benefit

These four benefits are part of your Statutory Accident Benefits Coverage, but the coverage amounts can be increased. These benefits will have their own limits, and other requirements, but the optional indexation benefit helps ensure that any payments you receive in the event of an accident benefits claim keep pace with the rate of inflation.

How does indexation work when it comes to accident benefits?

The Financial Services Commission of Ontario (FSCO) lists guidelines that apply to optional indexation benefits.

According to its website, benefit amounts and monetary limits are indexed on January 1 of each year immediately following the accident. The 2022 indexation percentage is 4.4%.

In the event you are involved in a collision and make a claim, the optional indexation benefit will increase your payment amount accordingly. Indexation calculations are complicated but effectively this means the value of your payments do not decrease with inflation.

When does it make sense to purchase the optional indexation benefit endorsement?

When inflation is at an all-time high like it is right now, it might make sense to add the optional indexation benefit endorsement to your policy. This endorsement is particularly helpful when it comes to income replacement benefits. If you receive income replacement benefits over multiple years, their value effectively decreases once you factor in inflation.

The optional indexation benefit endorsement helps ensure you’re getting the full value of your accident benefits coverage over the life of your policy. The indexed percentage is updated each year as the CPI is adjusted for inflation and the FSCO approves rates.

While there are many options available for Ontario drivers to ensure the best protection for themselves and their families, it’s crucial to evaluate your risk exposure in various categories. If the rising cost of inflation is a concern for your personal situation, additional coverage offered by the optional indexation benefit can provide you with peace of mind — even if it means a slightly higher premium.

It’s important to consider all your options when it comes to preparing for the worst-case scenario after a serious collision. Speak to your insurance provider for more information and to see if adding an optional indexation benefit makes sense for your personal situation.

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Caitlin McCormack

Caitlin McCormack is a writer based in Toronto. Her work has appeared in MSN, Food Network, HuffPost, What to Expect, Today's Parent, and Mashable, among others. When she isn't writing, she's busy chasing after her two sons, testing out new recipes, and working on her century-old fixer-upper.

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