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Life insurance, or life cover and death cover, allows individuals to protect their loved ones’ financial future if they are no longer around to provide financial support or financial security.
Different types of life insurance products are designed to provide financial protection over different scenarios in life. The four types of life insurance in Austrlia are:
- Life cover/death cover
- Trauma Insurance
- TPD Insurance
- Income Protection Insurance
In Australia, anyone between the ages of 16 to 65 can apply for life insurance, with many insurers on the market offering a variety of policies with varying eligibility criteria.
With so many policies on the market, securing the best type of life insurance for the best price can be challenging.
This article provides helpful information about life insurance needs, costs and exclusions, particularly the factors that affect how much life insurance covers.
This guide also outlines ways to reduce life insurance premiums and discusses how price should not be the only factor you should consider when selecting which life insurance policy is suitable for you and your family’s needs.
What Are Life Insurance Premiums and How Are They Calculated?
A term life insurance premium is the most basic form of life insurance an individual can get. When an individual passes away from a serious illness, their beneficiaries will receive a cash benefit from the insurance company to which the individual has paid a premium amount within a specific time period.
Life insurance companies in Australia do not have a consistent formula to calculate life insurance cover. Therefore, there is no average cost of life insurance. Just as each of us is different, each insurance provider has different types of insurance, guidelines, and processes to determine the price of a policy’s premium.
Similarly, individual circumstances vary from person to person, with different people requiring different types of cover. Such circumstances can depend on age, family commitments and responsibilities, and stage of life.
What Factors Affect Life Insurance Premiums?
Several personal factors can affect your life insurance cover, including:
- Age
- Gender
- Occupation
- Lifestyle
- Current medical conditions, such as permanent disability
- Past medical history
- Smoking status
These factors differ from person to person, so it is important to fully disclose these details to the insurer during the application or underwriting stage to meet the insurer’s eligibility criteria when you consider purchasing a life insurance policy.
For example, individuals with permanent disabilities may qualify for total permanent disability or TPD insurance, providing ample personal insurance coverage.
Another significant factor that affects the cost of life insurance premiums is the amount of cover required. A person who needs $100,000 of life insurance cover is likely to pay considerably less in life insurance premium costs than someone who requires $500,000 of cover.
What Does Life Insurance Cost?
There is no set or specific cost when it comes to life insurance. Each customer who purchases insurance has different needs and circumstances, and requires a different level of cover. Premiums are calculated based on these individual needs and circumstances.
A 34-year-old non-smoking male who obtains a life insurance policy with a value of $100,000, for example, can expect to pay as little as $3 per week in premiums. Meanwhile, a female of the same age with a non-smoking status can pay less than $2 of average weekly premiums.
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Call Our Team TodayHow Does Your Age Impact Your Premiums?
Age, gender, overall health, and smoking status can significantly affect premium costs, with premiums naturally increasing with age.
For example, as you approach retirement, you are more likely to have paid down your mortgage, and have more assets than someone younger and who has just secured their first mortgage. Therefore, the level of coverage and the factors that contribute to calculating your funds needed to support you and your dependents financially will be different from person to person.
How Can You Make Your Insurance Premiums Cheaper?
Making changes to your lifestyle is one way to decrease the cost of your life insurance premiums significantly. With smokers paying an estimated 81% more in life insurance premiums, quitting smoking can be a great budget-friendly lifestyle change.
Insurance companies may also refer to the target market determination or TMD to see which insurance cover applies best to individuals based on their lifestyle.
Other ways to reduce your life insurance premiums include comparing policies and utilising life insurance calculators, which estimate costs based on your financial situation. These are available on most insurers’ websites and websites like Money Smart.
Additionally, bundling your policies, such as combining your life insurance policy with income protection insurance, can also lead to significantly cheaper premiums.
Premium Structures
There are two ways to purchase life insurance premiums:
Stepped Premiums
Selecting a stepped life insurance premium can lead to cheaper premiums in earlier years of the cover. However, this insurance depends upon the duration of cover required and other factors, such as your age at the time you purchase the policy.
As indicated by the name, stepped premiums start at a lower level and increase with age. If you require insurance only for a limited time, a stepped premium may be more cost-effective than a level premium option.
Level Premiums
Level premiums may be a more cost-effective option over the long term. Level premiums remain at a consistent level throughout the duration of the policy. Unlike stepped premiums, they do not increase during the coverage period.
If locked in early at a young age, level premiums can result in a larger payout over the life of the policy for a lower overall premium.
Level premiums also tend to make budgeting more manageable, as premium costs are known in advance and remain at a set rate.
Do Women Pay Less for Life Insurance?
In general, women pay approximately 35% less for life insurance than men.
For example, an Australian woman in her 30s who is a non-smoker with no critical illness and with $500,000 of cover can expect to pay $34 a month in premiums, while a non-smoking male of the same age can pay $46 per month for the same level of cover.
Does Low-Cost Life Insurance Provide Quality Cover?
Low-cost life insurance policies can undoubtedly provide quality cover for living expenses. However, it is vital that before purchasing a life insurance policy, you determine whether the policy meets your individual needs.
A life insurance policy should never be purchased simply based on cost alone, as the price is not the only factor for consideration.
Some of the risks that are most commonly associated with low cost or cheap life insurance policies include:
- Purchasing a policy that does not suit your lifestyle needs
- Not being adequately covered, including coverage for your and your dependents’ specific health conditions
Underinsurance, where the level of cover is insufficient to cover the costs associated with your family’s needs, is also a risk associated with cheaper, low-cost insurance policies.
To avoid these risks, it is always essential that you read through the relevant product disclosure statement (PDS), which will outline the terms and conditions related to the policy, before purchasing any life insurance product.
Most of all, you should only enquire about life insurance from insurance companies with an Australian financial service licence (AFSL) and an Australian business number (ABN). This is to ensure you receive valid and compliant information regarding insurance policies.
Is There a Cheapest Life Insurance Policy?
No specific life insurance policy can generally be described as the cheapest. The cheapest policy for one’s personal circumstances will not necessarily be the most affordable policy for someone else.
Due to the large number of variables that can affect the cost of life insurance, it is essential that you obtain a personalised insurance quote that will determine the best and most cost-effective policy for you and your needs.
Still not sure where to start, or want help securing the right insurance faster?
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I want to see all my options with the help of a Finance Expert
Call Our Team TodayReferences
- Life Insurance.
https://www.allianz.com.au/life-insurance/
2. How Life Insurance Works
https://harman.com.au/latest-articles/how-life-insurance-work
https://www.tal.com.au/life-insurance
4. Cheap Life Insurance
https://www.finder.com.au/life-insurance/cheap-life-insurance
5. Life Insurance Cost
https://www.canstar.com.au/life-insurance/cost-of-life-insurance/
6. How term life insurance works: The basics
https://www.guardianlife.com/life-insurance/how-term-life-works
7. Total Permanent Disability (TPD)
https://www.investopedia.com/terms/t/total-permanent-disability-tpd.asp
