How do Life Insurance Premiums Work?

Find out what factors influence your life insurance premiums.

There are many factors that an insurer will consider when determining how much you'll pay for your life insurance policy. Your insurer will evaluate the level of risk you pose to them and calculate your premiums accordingly. Keep reading to find out what factors are important to insurers.

Are life insurance premiums calculated based on risk factors?

Yes they are. Here is a look at some of the factors that determine whether you are considered as a high risk or low risk individual, and how it affects your life insurance premiums:

  • Age. One of the main factors that determine the life insurance premium is your age. Generally, the younger a you are, the lower your premiums will be. The rationale simple: the younger you are, the less likely you are to make a claim, so the less money you'll pay.
  • Nature of profession. The nature of your job job has a huge impact on your life insurance premiums. For instance, if you work in an office and sit at a desk all day long, your risk of death at your job is quite limited, which means your insurance premium will be low. However, if you are in a high risk profession such as a builder or pilot then your insurance premiums will be higher.
  • Individual lifestyle. Your lifestyle is another factor that determines your life insurance premium. If you are a chain smoker, or if you drink practically every day, then you will be considered as a high risk individual and your insurance premium will be higher than someone who is a teetotaler or does not smoke.
  • Pre-existing conditions. If you have any pre-existing medical conditions such as high blood pressure, diabetes, or a family history of heart problems, then again you will be deemed as a high risk individual and the insurance company will charge you higher insurance premiums than healthier individuals.

How do I know if I'll need life insurance?

Life insurance is important for the one who supports the family, especially if children are involved. Life insurance will offer the security you once did but no longer do. It might be a sum to help with burial cost or it might a sum meant to take care of those left behind for the short or long term. In order to collect the insurance, the policy must be up to date in premiums and the intent of the policy must be met.

Once that has been established, the policy will be processed for payment to the beneficiary listed on the policy. Insurance payments take between four and eight weeks, with eight weeks being an extreme case. The check will be made out to the beneficiary and it will be up to them to disburse the funds.

How do I get quotes on premiums?

After determining the kind of life insurance coverage is right for you, do your homework and get a variety of quotes from a variety of insurance companies. Do not let an insurance agent talk you into more coverage than you need or can afford.

Some insurance companies may charge a “quote fee.” That is a nominal fee assessed to cover the paperwork necessary to provide you with policy quotes. If you request a quote from an insurance agent, they may provide multiple quotes. Any fee charged will most likely be applied to your first premium in the event you accept the policy.

What type of life insurance policies are available in Australia?

There are different types of life insurance you will have to take into account, all are designed to protect your dependants should you die or remain alive but unable to earn a living anymore. These are:

  • Term Life Insurance. A policy that pays a lump sum amount in the event of the insured person's death. This policy is designed to financially protect surviving dependants, or to pay creditors any amount due to them that you are unable to pay.
  • Total and Permanent Disability (TPD). A policy that will pay out a lump sum amount should you become totally and permanently disabled. Many people have this policy paying out a similar amount as their term life insurance policy but before doing so make sure you take into account any income protection benefits that may be payable to ease the strain a little.
  • Income Protection. A very valuable insurance tool to have should you become sick or injured to the extent that you cannot continue earning your usual income. It usually pays a monthly amount of up to 75% of your average monthly income before you became eligible to claim. You determine how long you want the payments to last for and the benefits can be arranged to begin when your employer's sick leave entitlements run out.
  • Trauma Insurance. This insurance pays a lump sum amount when you're diagnosed with suffering from a prescribed illness such as a stroke, cancer or heart attack etc. It will meet the extra costs that become incurred while you make the necessary life style adjustments.

At the time of application for a life insurance policy, you will have to undergo a medical exam and fill out some forms that ask you various questions about your age, your work, your lifestyle, as well as your medical history. You may be tempted to lie about certain factors so as to bring your insurance premium down. However, not only is that illegal, but that also provides the insurance company with valid grounds for refusing any payouts in the future.

Therefore if you have lied on your life insurance application, in the eventuality of your death, your family may be left without any payment from your insurance cover. All the insurance premium payments that you had paid over the years may be forfeited as well. Thus, now that you know how insurance premiums actually work, make sure you are honest on your life insurance application as you may think you’re saving on a premiums, but you’re costing your family much more.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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Richard Laycock

Richard is the senior insurance writer at and is on a mission to make insurance easier to understand.

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