Inheritance
If the ballpark numbers are at least remotely close, the amount of assets set to be transferred from one generation to the next in Australia over the coming decades will amount to trillions of dollars.
Life insurance protects what matters most but understanding how much it costs can be difficult. One of the most common questions is why premiums change over time, even when the cover stays the same.
In this article, we’ll explain how life insurance premiums are calculated, what influences them, and why insurers sometimes need to make changes to keep your cover sustainable.
Life insurance is built around risk. When you take out life insurance, your insurer agrees to take on some of the financial risk tied to your life, health and ability to work. If something unexpected happens and you’re unable to work or pass away, your insurer – not your loved ones – provides financial support to help cover expenses like bills, debts, or funeral costs.
Insurers charge premiums to achieve this. These payments go into a shared pool that pays claims and cover operating costs.
Insurers calculate each person’s risk level (how likely they are to claim) to determine how much they should pay for their selected amount of cover. Personal circumstances or specific attributes such as age, gender and health influence the cost of premiums.
For example, because smoking increases health risks, smokers are on average more likely to claim on their insurance. Because of that higher risk, smokers typically pay more for their cover than non-smokers.
As you age, the likelihood of you needing to make a claim increases. Policies with a variable age-stepped premium structure (also known as stepped premiums) increase yearly to reflect the added risk of ageing. While they’re often cheaper early on, they become more expensive later in life.
Policies with a variable non-age-stepped premium structure (also known as level premiums) stay more consistent over time because they spread the cost over several years. Premiums do not increase each year due to age but start higher. However, they can still change over time due to other factors like repricing or changes to your cover.
As living costs increase, your sum insured will have less purchasing power. To help offset these impacts of inflation, many policies include a feature that automatically adjusts your sum insured annually, by either a fixed percentage increase or the Consumer Price Index (CPI). Keep in mind that each time your sum insured changes, your premium changes too.
Insurers regularly review premium rates to make sure they can continue supporting future claims and cover operating costs. This process is essential for keeping insurance sustainable into the future.
One key factor influencing price is the cost of future claims. In recent years, there has been a significant rise in mental health-related claims across the life insurance industry. For example, mental health now accounts for 36% of total and permanent disability (TPD) claims for Australians aged 30‑40, with a 730% increase in these claims over the past decade.
When claims volumes rise, insurers may adjust premiums across their customer base to maintain the long‑term stability of the insurance pool and strength for future claims.
Insurance can feel complex, but you don’t have to figure it out alone. If you’re concerned about the cost of your cover, ask your financial adviser how you may be able to keep your insurance affordable, relevant, and aligned with your goals.
Get in touch with us to talk through how your current cover aligns with your financial goals.
Source: Australia’sMental Health Check Up This article is prepared by Acenda life insurance and is issued by Nippon Life Insurance Australia and New Zealand Limited ABN 90 000 000 402 AFSL 230694 (NLIANZ), trading as Acenda Life. Acenda Life is a member of the Nippon Life Group.
This article is general in nature and has not been tailored to individual circumstances. Before acting on this information, you should assess your own circumstances or seek personal advice from a licensed financial adviser. This article is current as at the date of issue but may be subject to change or be superseded by future publications. While it is believed that the information is accurate and reliable, the accuracy of that information is not guaranteed in any way. Past performance is not a reliable indicator of future performance, and it should not be relied on for any investment decision. Whilst care has been taken in preparing the content, no liability is accepted by the Licensee nor any of its agents, employees or related bodies corporate for any errors or omissions in this publication, and/or losses or liabilities arising from any reliance on this information.
If the ballpark numbers are at least remotely close, the amount of assets set to be transferred from one generation to the next in Australia over the coming decades will amount to trillions of dollars.
For many Australians, superannuation is their greatest asset outside the family home. But do you have a plan for who will receive your super if something happens to you?
Certe is part of the AZNGA Group. General Advice Warning: The information provided on this webpage is intended to provide general information only and the information has been prepared without taking into account any particular person’s objectives, financial situation or needs. Before acting on such information, you should consider the appropriateness of the information having regard to your personal objectives, financial situation or needs. Certe Wealth Protection Pty Ltd (ABN: 31 150 270 278) is a Corporate Authorised Representative of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
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