Value of Finding the Right Life Insurance Premiums

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Before you apply for insurance, make sure you fully understand your premium options. We have meticulously gone through your most prevalent questions and answered them below.

What are life insurance premiums determined by?

To determine your life insurance premiums the insurer has to take various factors into consideration; such as the amount of cover you require, your age, gender, smoking status, your medical history and the type of premium structure you choose. Lesser known influences include stamp duty, frequency loading and how compressive your policy is.

Gender:

is used as a risk rating factor, one reason being the gender differences between life expectancy.

Age:

Generally, the younger you are, the less expensive your cover, due to age being a significant factor in developing certain

Your health:

Specifically pre-existing medical conditions and your BMI, which is calculated using your height and weight. If your BMI is above 35 your premiums might become more expensive.

Smoking status:

If you are a smoker, you’ll pay a higher premium rate because of the increased risk of heart disease, cancer, and lung disease.

Pastimes:

Some past times pose a higher risk than others and usually requires extra premiums, for example, Motor racing and skydiving.

Occupation:

Your occupation will affect your premiums for TPD, Income Protection & Business Expense policies. Generally, the more dangerous your occupation, the higher your premium.

The Amount Insured:

This refers to the level of cover you’ve applied for.

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What affects life insurance premiums?

  • Brand:

    Every insurer offers a different base rate premium. We have done extensive research on more than 3,000 quotes from 32 brands and found that certain big brand insurers are charging higher life insurance premiums.
  • Trauma standard vs. Trauma plus:

    These are generally the two types of Trauma Insurance policies to choose from. The plus option covers an additional 10 to 15 critical illnesses, making the policy generally more comprehensive and thus the higher premium.
  • Income protection plus standard:

    Standard income protection is generally the cheaper of the two options because the Plus option adds additional benefits, such as a lump sum payments for select traumatic events built in.
  • Frequency loading:

    When you pay your premiums more frequently, i.e. monthly instead of annually, you may incur an additional loading.
  • How comprehensive the policy is:

    This refers to the insurer’s definitions of key terms, for example, Own Occupation vs. Any Occupation Home Duties for TPD.
  • Stamp duty:

    This is state based tax and will differ between states. Insurers will generally include the charge of stamp duty in your base premium for certain cover types.
  • CPI increases:

    Many insurers rightly or wrongly include built-in Consumer Price Index (CPI) increases into the sum insured, meaning you have to “Opt Out” of these if you don’t want your cover to increase by CPI – 5% which will result in an increase in your premium.
  • Premium options:

    Generally, you’ll be able to choose between a Level or Stepped premium structure and Hybrid premium option.

More frequently asked questions about life insurance premiums

  • Level Premiums

    Starts off higher, but this premium structure does not increase due to your age, making it more affordable in the long-term. The level premium structure might be for you if you’re ready to commit to a policy and want a policy for more than seven years, as this is when you’ll generally start to see the benefit.

  • Stepped Premiums

    Cheapest in the short-term, but becomes more expensive with each passing year. This type of premium structure will generally suit people who are looking for short-term affordability and not a long-term investment.

  • Hybrid Premiums

    Hybrid premiums is a mixture of level and stepped premiums. Your policy starts off at higher than normal stepped style premium and then converts into a level premium structure. This type of premium style is best suited for those unable to afford level premiums in the short term and don’t want to pay higher stepped premiums in the long term.

  • Premium Freeze

    This option keeps your premiums fixed at the same price year on year, while your cover amount decreases each year. It allows you to freeze your premiums if they are becoming too expensive or unaffordable. This option is available to anyone on stepped premiums experiencing difficulty affording their premiums.

There are a variety of ways you can save money on your premiums. For example, take out a policy when you’re young, the older your get, the more expensive it becomes. Shop around and compare quotes, making sure your cover amount suit your current needs. Seek out insurers offering healthy life discounts on premiums or removing policy fees from premiums.

Another option might be to have the CPI from your policy removed, meaning your policy will no longer keep up with inflation.

No, there is no GST on life insurance premiums. If you own your life, TPD or Trauma insurance policy and it’s under your name, you can’t claim a tax deduction on your premiums, but your claim payout will be tax-free. However, if you have a policy funded through superannuation, there can be tax consequences. In general life insurance benefits are not taxed if they are paid out to a financial dependant, however, if not they could be.

Income Protection premiums are tax deductible, because you are protecting your income, but be aware, when you claim on your monthly benefit then you have to pay tax on that benefit.

You can pay by cheque, direct debit or credit card for yearly payments, which is generally 5-8% cheaper than monthly payments, depending on the insurer. If you prefer paying monthly premiums the insurance company will only allow payments via direct debit or credit card.

For a more in-depth comparison and accurate assessment, please complete the request above, and we’ll provide you with a detailed comparison to help you decide which premium style will suit you best.

Published: January 12, 2017

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