What happens to premiums if a critical illness cover policy includes indexation?

When a critical illness cover policy includes indexation, premiums are designed to increase in line with inflation. This mechanism is implemented to protect the sum assured and the benefits of the policy from losing value over time due to inflation. As the cost of living rises, the expenses associated with critical illnesses may also increase; therefore, indexation helps ensure that the coverage remains adequate and relevant as time passes.

This feature is particularly important for long-term insurance policies, where a fixed sum assured could become insufficient to cover medical costs in the future. By increasing premiums in line with an inflation index, the policy aligns the coverage with current economic conditions, ensuring that policyholders maintain appropriate financial protection against the risks of critical illnesses.

Other options do not accurately reflect the nature of indexation in a critical illness cover policy. Premiums remaining constant would mean no adjustment for inflation, which could lead to decreased coverage value over time. A decrease based on market rates and a one-time fixed payment also do not account for the necessity to adjust protection levels due to inflationary pressures. Thus, the correct answer highlights the critical importance of indexation in maintaining the relevance of the policy benefits.