The Value of Finding the Right Life Insurance Premiums
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7 Factors Influencing Your Premium
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.
Premium Type: You usally have a choice between either Variable Age-Stepped Premiums and Variable premiums, while select insurers’ will also offer hybrid premiums. Depending on your choice your premium structure will profide certain advantages and disadvanatges.
The Amount Insured: This refers to the level of cover you’ve applied for.
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 affects life insurance premiums?
1. Premium options
Generally, you’ll be able to choose between a Level or Variable Age-Stepped Premium structure or a Hybrid premium option. Typically, Variable Age-Stepped Premiums start at an affordable rate but increase each year as you age. Level policies generally start more expensive but don’t increase yearly. Hybrid premiums offer the best of both worlds.
2. Your insurer
Every insurer offers a different base rate premium. Some insurers charge more for life insurance premiums. Typically, it’s in your best interest to compare policies to find the right option for your requirements.
3. 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. Generally, policies that include several built-in benefits will have higher premiums. It might be a good idea to take out a basic policy and only pay for features you need.
4. Frequency loading
When you pay your premiums more frequently, i.e. monthly instead of annually, you may incur an additional loading. By paying your premiums annually, you could save between 6% and 9% on your cover.
5. 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 result in you paying a higher premium.
6. Income protection plus vs. 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.
7. Stamp duty
This is a state-based tax and will differ based on the state you live in. Insurers will generally include the charge of the stamp duty in your base premium for certain cover types.
8. CPI increases
Many insurers 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 generally means your premium will be higher.
What are the different types of life insurance premiums available to me?
- Variable 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.
- Variable Age-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 Variable Age-Stepped Premiums and Variable premiums. Your policy starts off at higher than normal variable age-stepped style premium and then converts into a variable premium structure. This type of premium style is best suited for those unable to afford variable premiums in the short term and don’t want to pay higher variable age-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 variable age-stepped premiums experiencing difficulty affording their premiums.
Why Choosing the Right Premium Structure Matters
Many Australians focus on the price of life insurance in the first year, without considering how premiums will change over time. Premium structures such as Variable, Age-Stepped, Hybrid, and Premium Freeze each have advantages and disadvantages depending on your age, health, and financial goals. For example, Age-Stepped premiums are cheaper at first but rise each year, while Variable premiums provide predictability and can save money in the long run. Choosing the right structure is not just about affordability now, it is about ensuring your policy remains sustainable and suited to your needs in the years ahead.
Frequently asked questions and answers
Can you reduce your life insurance 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 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.Is there GST on life insurance premiums?
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.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.
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.How does payment of life insurance premiums work?
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.What happens if I can’t afford my premiums anymore?
If your premiums become difficult to manage, most insurers offer options to help you maintain cover. For example, a premium freeze allows you to lock in your current premium amount, although your cover will gradually reduce over time. Some insurers also provide “premium holidays” where you can pause payments for a short period, though conditions apply. Alternatively, you may reduce your sum insured to bring down the cost. The key is to contact your insurer or advisor early, before missing payments, to explore the most suitable option for keeping your policy active.Do life insurance premiums increase every year?
For most people, yes, unless you are on a variable premium structure. Variable Age-Stepped premiums are the most common and they rise each year as you age because your risk of illness or death increases over time. Some policies also include annual Consumer Price Index (CPI) increases, which automatically raise both your cover amount and your premium to keep pace with inflation. Level premiums remain more stable, though they may still increase if the insurer raises overall rates or if government charges like stamp duty change. Understanding how your premiums are structured helps avoid surprises down the line.
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