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Life insurance premiums explained

Life insurance premiums explained

So you’re thinking about taking out a life insurance policy. Congratulations! This is the first step to lasting peace of mind for you and for your family.

As you know, life insurance is less about cost than it is looking after the people you love most. However, we do appreciate that customers want (and deserve!) clear, accurate information about how much it costs to take out a policy.

To help you make this important decision and tap into the benefits and assurances life insurance provides, we’ve answered some frequently asked questions about life insurance premiums. 

What are life insurance premiums?

Before we discuss life insurance premiums, let’s start with life insurance- what it is, how it works, and why it’s worth your time and money.

Did you know that life insurance isn’t only in case of untimely death? Rather, life insurance products are designed to support your beneficiaries when you are suddenly and no longer able to do so. Terminal illness, trauma, and permanent disability are just a few sample scenarios when you may be eligible to file a life insurance claim.

Once a claim is approved, the individual or individuals named on your policy will receive a payout, either as a lump sum or a series of payments over time. While this does not and cannot eliminate the stress and grief associated with injury, illness, and death, it can relieve your loved ones of the financial burden brought on by things like rehabilitation costs, funeral arrangements, mortgage repayments, childcare, and so on.

To provide this coverage, policyholders must pay insurance providers set fees. These fees are called life insurance premiums.

How are life insurance premiums calculated?

Each insurer will have a slightly different process for reviewing your application for insurance cover, a fact that makes shopping around all the more important. Your premium is typically calculated using a combination of information about you (your age and health, for example) and reports or statistics specific to your demographic to determine how likely you are to make a claim for coverage.

Put simply: the higher the probability of a claim, the higher the premium.

Consider two 35-year-old women: one with a clean bill of health, and another who smokes 20 cigarettes per day. The woman who smokes is likely to pay a higher life insurance premium due to the increased risk of associated illness. 

Will my life insurance premium change over time?

Similar to claim probability, premiums tend to increase as you age. This is based on the expectation that you are more likely to file a life insurance claim at 60 than you would at, say, 25.

There are two types of premiums to consider when deciding which policy to purchase:

Stepped premiums: Stepped premiums typically start off lower and are initially more affordable; however like a set of stairs, the costs go up each year with your age and level of cover. Stepped premium policyholders should be aware of these incremental jumps and plan accordingly.

Levelled premiums: As the name suggests, levelled premiums tends to be more consistent over time. This means a more expensive upfront investment, but stable expenses across the lifespan of your policy.

How often do I pay my life insurance premium?

This one depends on the type of cover you choose. We always recommend taking a close, critical look at the insurer’s product disclosure statement. Typically, your life insurance premium is payable either monthly or annually.

To find out how much life cover you may need, and to learn more about what products are available, head to our  life insurance calculatorand onwards to our quick and easy online comparison tool.

If you still have lingering questions about life insurance premiums, our Lifebroker insurance specialists are here to help. Give us a call today on 13 54 33.

This website offers General Advice only and does not consider your personal objectives, financial situation or needs. Before you purchase a product, it is important to read the relevant Product Disclosure Statements to consider if the product is appropriate for you.

Choosing insurance is complex. We make it easy. To find out more about your Life Insurance and Income Protection options, contact Lifebroker today on 13 LIFE (13 54 33).

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