How Your Premiums Are Calculated:

Ever wondered how insurers work out the cost of your life insurance? There are many factors that can impact the premium you pay, but there are 4 factors in particular you need to be aware of.

  • 1. Your personal risks
  • 2. Your age and gender
  • 3. The more protection you have, the higher the cost of your cover
  • 4. Whether you’ve chosen to pay stepped or level premiums
  • A number of other factors may influence your premium, including:

1. Your personal risks 

  • Dangerous occupations can attract a higher base rate for your insurance, even before any loadings are applied.
  • Poor health (such as a high Body Mass Index, or BMI) as well as dangerous hobbies, may add what’s called a ‘premium loading’ to your cover – which means you pay a higher premium than someone who doesn’t have those risk factors. Any loadings like these are recorded on your Policy Schedule.

In terms of your health and lifestyle, the core factors that can contribute to your risk, and therefore a potential premium loading or higher set of rates, include:

  • Smoking – past and current smoking behaviour.
  • Medical history – any conditions you currently suffer from, or have previously suffered from, or hereditary factors that increase your risk of claim.
  • Occupation – the danger posed by your job on your physical wellbeing.
  • Hobbies – the danger posed by any high risk personal activities.

If your health improves or your lifestyle has changed recently, get in touch with your adviser to review your policy and determine if these loadings can be removed to help lower your premium.

2. Your age and gender

  • Life insurance premiums are predominantly based on the risk of certain events happening to you. These risks increase with age as serious illnesses become more common as you get older.
  • Age-related risks can also differ for men and women, which is why premiums for men and women of the same age may be different. For example, women live longer than men on average, which is why in most cases life cover premiums are cheaper for women.

3. The more protection you have, the higher the cost of your cover

Your cost is influenced by these important factors of your policy:

  • The type of benefits that are payable on your policy (trauma, disability, death).
  • The sums insured of those benefits.
  • How long you would receive those benefits for (i.e. your benefit period for income protection).
  • The waiting period you’ve selected before your benefits are paid out (for income protection).
  • Any optional extras you may have selected.

4. Whether you’ve chosen to pay stepped or level premiums

For most of our policies, we offer two structures of premiums:

  1. stepped premium is one where the cost of your cover is recalculated each year based on your age at each policy anniversary. Generally this means your premium will increase each year as you get older.
  2. level premium is one where premiums are calculated based on your age when any cover started. Your premium is generally averaged out over a number of years, which means you avoid increases in your premium due to age at each policy anniversary. This means your cover is more expensive than ‘stepped premiums’ at the beginning of your policy, but generally gets cheaper (relative to stepped premiums) as your policy continues.

It’s important to note that at policy anniversary the premium may still increase (even with level premiums), because age is just one factor that determines your premium. Other factors that impact premium (such as claims trends in Australian population) can result in a repricing of your insurance cover.

When insurers reprice stepped or level premiums, they don’t do it for an individual policy within a specific group unless they do it for every policy in that group.

Regardless of whether stepped or level premium is selected, premium rates and premium factors are not guaranteed or fixed and insurers have increased premium rates in the past and may increase in the future.

A number of other factors may influence your premium, including:

  • Where you live – because different state governments levy stamp duty differently.
  • The structure of your cover – such as whether you select to have your insurance as a ‘stand-alone’ product, or whether you have it linked.
  • The number of lives covered – you may be eligible for a group discount on your premium if your policy covers family or business partners.
  • The frequency you want to pay your premium – where paying your premium monthly can attract a loading which wouldn’t apply if you pay your premium annually.
  • Whether you’ve selected indexation – as a way of pegging your cover against cost of living increases.
  • Whether you’ve chosen any extra cost options for your policy – including things like accidental death covers, child covers and others.

As always, your adviser is best placed to help you understand your policy structure and any loadings or discounts your cover may attract.

Types of Insurance Cover 

There are 4 main types of life insurance

There’s more than one way to protect yourself with life insurance. Here we explore the 4 main types of cover, how they can help and how much cover you may need.

Life cover

Pays a lump sum to your beneficiaries or estate in the event of your death or terminal illness. Allows you to pay off any existing debts, cover living expenses for your dependants, or provide the financial support you’d like to give them in your absence.

Pays you a lump sum if an illness or injury leaves you permanently disabled and unable to work, or perform normal domestic duties if you work in a home-maker role. Allows you to cover out-of-pocket medical expenses, home or transport modifications, support your ongoing financial needs and take care of your dependants.

Pays you a lump sum in the event of certain types of serious illness or injury. Allows you to cover the cost of out-of-pocket medical expenses and financially support your lifestyle and family during an extended break for you (and potentially your spouse) from work as you recover.

Pays you a monthly benefit to replace part of your income if you are temporarily unable to work as a result of serious illness or injury. Allows you to cover everyday living expenses and maintain the lifestyle you’ve built for yourself and your loved ones.

Please contact our office if you would like any further information regarding Insurance for you and your family.