Understanding your insurance premium and how it is calculated
When you start thinking about getting any kind of insurance, your premiums are a big consideration.
Premiums are what you’ll need to weigh up to determine whether what you pay is worth what you receive. But let’s start with the basics.
What are insurance premiums?
Insurance Council of New Zealand states that your premiums are “the dollar amount that you pay for an insurance policy each year to protect yourself from unexpected events, like a car accident or a house fire. If that happens, your insurer helps cover the costs, so you don’t have to pay for everything yourself.”
In a nutshell, it’s how much you pay for cover.
In terms of life insurance, it’s how much you pay each fortnight, month or year for the peace of mind that, if something should happen to you, either you might be eligible for a payout (in the case of serious illness or a permanent disability), or your loved ones can receive a payout (in the case of your passing).
How are insurance premiums calculated?
There are quite a few factors that an insurance company will take into account when determining your premiums, and of course, each company is a little different.
For example, the policy features and duration of the policy will usually have an impact on your premiums. One feature that can change the level of premiums you pay is whether your life insurance cover includes serious illness and/or permanent disability. Be sure to check if your policy includes these features when comparing companies.
But when it comes to things unique to you, the biggest factors generally are age, benefit amount, health and lifestyle.
How your age impacts life insurance premiums
Most insurance providers will take your age into account and generally, the younger you are when you sign up, the lower your premiums may be.
However, there could be other lifestyle or health factors that affect this.
Adults can sign up for life insurance for most of their lives, from their late teens until approximately your 70s, depending on the provider.
The role of benefit amount in premium calculations
When you sign up for life insurance, you’ll be asked how much you’d like the benefit amount to be.
This is also an important question, and like all questions, is best to consider carefully. Take into account how much you or your family would need if you were no longer earning an income. Think about how much you’d need to pay off debt, care for dependents, and sort out your mortgage.
There are even life insurance calculators to help you determine the level of cover you might need.
Life insurance typically offers anywhere from $100,000 to a couple of million (depending on your level of cover!), and if you decide you only need something on the lower end of that scale, it is likely you’ll have lower premiums than someone on the higher end (assuming your age and other factors are similar).
Health and medical history: key factors in premium costs
Considering life insurance can be about your health and longevity, your current health and medical history also have a role to play.
This will include your smoking status, and could include your Body Mass Index (BMI). It is important to also share existing conditions, or major surgeries you’ve had in the past.
Similarly, a provider might ask about your lifestyle and job to know more about how you spend your time, and whether that makes you more or less likely to become sick or injured in the future.
How can you reduce insurance premiums?
There isn’t much you can do about your age, you can’t change your past health, and unless you’re looking to change your career, it might not be the best move to switch your jobs.
However, you may be able to make some health and lifestyle improvements in order to potentially bring your premiums down. Stopping smoking can be a big one, and maintaining a healthy weight is another, depending on your provider. However usually this is only the case for situations where the smoker has quit for a minimum of 12 months.
Of course, it’s also important to compare life insurance premiums. That doesn’t mean simply opting for the cheapest one, but rather looking at everything a provider can offer, and finding the best cover for your needs.
You can start right here and request a quote for OneChoice Life Insurance to see all the features you’ll receive!
1 Jun 2025