A life insurance policy is a contract between an insurer and you, the policyholder, that guarantees a lump-sum payout to a specified beneficiary in the event of your passing Life insurance is an effective and popular way to provide your loved ones with financial protection after you’re gone The payout from life insurance can help your beneficiary with all short-term expenses immediately after your passing, i e , funeral costs, outstanding medical bills, etc , as well as ongoing financial obligations like the mortgage or rent and general living expenses
Typically, the first question most people have about life insurance is how much it will cost them and if they can afford it With this in mind, this post addresses the question of how much does life insurance costs in Australia, which factors affect the price of premiums, and how you can reduce the cost of your life insurance cover
What factors affect life insurance cost?
The cost of your life insurance is determined by your circumstances and the level of cover you require Here are the factors that influence the cost of life insurance
Age: one of the most significant factors determining the cost of life insurance is the policyholder’s age This is simply because the older you get, the higher the probability of passing away and, subsequently, making a claim. As a result, depending on the type of life insurance cover you’ve taken out, insurance providers can adjust your premiums each year – to account for the increased risk.
Occupation: what you do for work can also affect the cost of your life insurance cover. Some occupations, such as construction, are riskier than others, so those who work in them are generally required to pay higher premiums.
Health: this includes your current health in addition to past medical conditions. Subsequently, you could be asked to undergo a medical evaluation to accurately determine your current state of health.
Gender: your gender (at birth) also factors into the cost of life insurance
Lifestyle mainly refers to whether you’re a smoker and how much you drink, if at all
Unsurprisingly, smokers pay more for life insurance because of the widely-known risk factors
Cover amount: the higher your level of cover, i e , the higher the lump-sum amount your stated beneficiary receives, the higher the price of your premiums
Policy structure: choosing between stepped and level premiums have a significant impact on your insurance premiums Also, how you choose to fund your life insurance premiums are a significant way to lower your costs Life insurance can be funded through your superannuation fund or personally Please seek personal advice before deciding how to fund your life insurance, as there could be significant tax consequences for funding life insurance premiums from super to your beneficiary
Life Insurance Cost Comparison
Group v Retail Life Insurance
Default life insurance cost per month policies are generally a lot more expensive than getting a retail cover that is specific to your life circumstances Group life insurance is the type of default life cover usually found within your superannuation fund These covers usually cost more as they do not know anything about you prior to giving you some protections and could hold more restrictions at the time of claim
Retail life insurance is usually cheaper and has better quality coverage How can something be cheaper and better?! Well, this is simply because your insurance is not pooled together into a massive group of risk, rather the insurer finds out everything from occupation to health about you, prior to offering you coverage This process allows the insurer to offer better definitions at the claim as they know your pre-existing health/occupation risks and allows the insurer to be upfront about anything they may exclude from your contract
Accident Only Life Insurance vs. Whole Life Insurance vs. Term Life Insurance
In addition to the policy’s personal attributes, as outlined above, the cost of life insurance is also determined by the type of policy, i,e , accident only life insurance v whole life insurance v term life insurance
Term life insurance cost is a policy that lasts for a specific amount of time, or term, which is generally 10 years This is usually offered to people with pre-existing medical conditions Then the insurer can choose to offer you another period for 10 years or more based on their assessment
Accident only life insurance is a policy which covers you in the event of premature death caused by an accident rather than an illness This cover is taken up by people who have a had significantly complicated health history
Whole life insurance is a policy that covers you generally till you choose to cancel the policy
The policies generally expire at 100 years old, however, it is very unlikely you would be holding on to life insurance policies until that age Most people will hold on to their whole life insurance policies until retirement, extinguish all their debt, have no more financial dependents, and a whole lot more reasons Hence, it is important to have a tailored risk strategy in place to cater to your specific needs and balance the average cost of whole life insurance
Can you reduce the cost of life insurance?
You can reduce the cost of life insurance by ensuring you:
● Are healthy, i e , physically fit and a healthy weight
● Stop smoking
● Moderate your alcohol intake
How much life insurance do you need?
After “how much is life insurance?“, the most common question people have is how much life insurance coverage they actually need; much like, the cost of life insurance in Australia, this comes down to your personal circumstances, such as:
● Your number of dependents
● Whether you currently work and your income
● Savings, investments, or any other forms of income (that your beneficiary would still receive in the event of your passing)
● Total assets
● Total debts
● Time until retirement
● Current health
You can learn more about how much life insurance coverage you’ll need and a quote for your premiums by completing the life insurance calculator below.
