The cost of life insurance is different for everyone — it depends on a range of factors that will vary for every individual. Learn about the importance of life insurance and which factors influence the price of your protection.
What is life insurance and why is it important?
To start, it’s good to know what life insurance is and why it’s important. Life insurance may provide a payout if you unexpectedly pass away or are diagnosed with a terminal illness. This benefit supports the people you love most, known as your beneficiary/beneficiaries — which means that even if you’re not there to take care of them, they’ll have the funds to help keep paying for life expenses like mortgage repayments, school fees, bills and groceries. Life insurance is a safety net that can relieve financial stress when a household income earner is no longer around.
Understanding the factors that affect life insurance cost
Your life insurance cost and coverage are directly linked. But there are other factors affecting life insurance cost, including:
- health and lifestyle
- insurance provider
- premium structure, and
- changes to premium rates (which can then increase the price/cost of insurance)
- policy options and features.
How age, health, and coverage amount impact life insurance pricing?
Your age, health and cover amount are all key factors in understanding life insurance cost.
Generally, your premiums will cost less when you’re younger and will increase with age. This is because the younger you are, usually the healthier you are. This principle applies to a stepped premium structure — that is, your premiums will increase with age. Level premiums are calculated based upon the age you were when you first took out your policy – meaning that level premiums won’t increase each year just because you are getting older. However, level premiums can still increase for other reasons, including for example, if your yearly benefit amount goes up due to indexation, or if the insurer increases their premium rates.
Health is another risk indicator taken into consideration when you apply for life insurance. If you have a history of good health, you’re more likely to pay less in premiums than someone who has had health issues in the past. Insurers will assess your health through questionnaires and may need medical reports and test results on occasion – this is commonly referred to as underwriting. It’s important to be completely honest about your health — and anything else — when applying for life insurance. If you’re found to have been misleading, any claims made down the track could be declined.
If you have a pre-existing health condition when you apply for life insurance, the insurer may place an exclusion on your policy. For example, an exclusion for heart disease may apply for someone with heart issues, meaning they would not be eligible for a payout if heart disease was their cause of death.
This factor is about the benefit you’ll receive rather than the risk you present. The more money you wish to be paid out at claim time, the higher your premiums will be. So, generally the lower your coverage amount, the lower your premium payments. Keep in mind that while it’s tempting to price down your premiums by lowering your benefit amount, you should avoid being underinsured. Your coverage amount should be based on the needs of those depending on you — how much would they need to cover expenses if you weren’t around, and for how long? It’s important to find the right policy that covers your needs and then do your research to find an insurer that offers premiums in your budget. You can use our calculator to figure out how much cover might suit you. You can then compare life insurers and their premiums based on that amount.
How lifestyle choices affect life insurance premiums
Your insurer will view some lifestyle choices as riskier than others. For example, if you smoke, you pose a higher risk and your premiums will reflect that. Activities like skydiving, deep sea diving or motorcycle riding can also be considered higher risk, and you’ll likely pay higher premiums on your life insurance policy as a result.
Travel can affect your premiums too. If you regularly visit countries considered high-risk, your premiums may be higher.
Similarly, your occupation can affect the cost of your insurance premiums. People in jobs with higher risk — like miners or window cleaners who work at great heights — will usually pay higher premiums than those who work in retail or an office.
How to compare life insurance policies and obtain an option you seek?
Insurer’s take many factors into consideration when pricing premiums for life insurance policies. As a consumer, doing the research to find the best price for life insurance can feel overwhelming at times. Remember, selecting a policy isn’t all about price — it’s about features, conditions, and insurer reliability too. Our comparison tool takes out the hassle for you by comparing policies based on your needs and circumstances all in one place. Our tool compares policies between five leading insurers in Australia. Once you’ve picked a policy, you can apply online or chat with one of our consultants if you have any questions.
Why is life insurance worth it?
People may take out life insurance to protect their loved ones from financial burden if they unexpectedly pass away. Aside from the heavy emotional toll a loss in the family can have, without life insurance, some may be left struggling to meet everyday costs like rent, mortgage repayments, bills and groceries. Life insurance can reduce that risk, so that if the worst were to happen, the people you care about most can be financially protected.
Whether or not life insurance is worth it will depend on your individual situation. Do you already have a financial safety net set up for emergencies? Would your family be financially comfortable if you were to pass away? Like any financial product, there are pros and cons to consider:
- You can protect your family from financial challenges if you were to pass away unexpectedly or are diagnosed with a terminal illness.
- Life insurance benefits in Australia may often be exempt from tax when held outside of superannuation.1
- Life insurance can help reduce stress for your loved ones by covering not only ongoing life expenses but funeral costs.
- If you choose to pay premiums monthly, you’ll need to factor monthly premium payments into your budget.
- Claim payment is only granted if all conditions of the policy are met. For example, a claim may not be paid out if the cause of death is not covered by the policy.
1Life insurance death benefits are generally tax free if they’re paid to a financial dependent (usually your spouse or child, generally under 18). You will need to check with your insurer who counts as a financial dependent when you’re setting up your policy. Payouts for total and permanent disability and critical illness typically follow the same rules. However, income protection payouts will be taxed at your marginal tax rate.
Frequently asked questions
The cost of life insurance depends on various factors including your coverage amount, age, health and lifestyle. You can use our calculator to compare the cost of life insurance coverage that could suit your needs.
Life insurance can be used as a financial safety net for the people you love most — if you were to unexpectedly pass away, a life insurance benefit can help your family continue to pay for the lifestyle they’re used to. If you already have personal safety nets in place, you may not need life insurance. But if you don’t know how your family would survive without you, it may be worth considering a life insurance policy.
Life insurance and funeral insurance are two separate products. Funeral insurance can pay a lump sum benefit if you pass away, to assist your loved ones to cover funeral costs and other related expenses (with cover typically up to $15,000). Life insurance is cover which can pay a much larger lump sum in the event you are diagnosed with terminal illness or pass away. This can help to cover your debts and assist looking after your dependants and generally requires some level of underwriting to be provided with cover. This means that the benefit payment at claim time is significantly different — depending on your level of cover, your family may receive up $1 million or more from a life insurance claim, while a funeral policy will generally pay around $5,000 to $15,000.
Some life insurance policies offer funeral cover within them. You can compare life insurance policies and check for features like funeral cover using our comparison tool.
Life insurance policies normally include a cooling-off period — if you cancel your policy within that time, you’ll receive any paid premiums back in full. If you cancel your policy after the cooling-off period, you generally won’t receive any premium refunds like most other insurance policies.
It’s a good idea to do some research before buying an insurance policy. Our comparison tool can help you find and compare life insurance policies from Australia’s most reputable insurers, so you can select a policy that suits you best. And if you have any questions or need a chat, you can speak with one of our consultants by calling 13 54 33.