Your premium toolkit: What makes up the cost of your life insurance?

Questions over pricing often come up for Kiwis when considering purchasing a life insurance policy. 

Yet one of the interesting parts about life insurance is that the elements that make up the cost of a life insurance policy are often pretty simple.

Let’s take a closer look. 

What is a premium for life insurance? 

To start with, it’s important to know what a life insurance premium is. 

A life insurance premium is how much you pay to your provider for your insurance cover. This could be a fortnightly, monthly or an annual fee, and it’s designed in such a way that your loved ones could get a payout should you pass.

In other words, a premium is simply the cost of getting life insurance. 

How are life insurance premiums calculated? 

Life insurance providers use a range of factors to determine the cost of an individual’s premiums. This can be a great thing for you as a customer, as it means you can possibly make changes to bring the costs down if you’re looking to minimise your spend. 

Keep in mind, not every provider will use every single factor mentioned here, and some providers may ask other questions to determine your premiums. 

Here are some of the most common factors you may come across.

Lifestyle and habits 

One of the major factors to take into account is your lifestyle and day-to-day habits. This could be anything from your smoking status, exercise and diet, participation in high-risk sports and other habits that may influence your premium. 

Age and general health 

Age is a factor you’ll come across with almost any provider. Generally, the younger you are, the lower your premiums are because you’re considered at a lower risk of passing away.

And even though there’s a real misconception that life insurance isn’t for young people, this protection could be useful for Kiwis of any age

As for general health, this might include your BMI (body mass index), which is a measure of your weight for your height. A BMI that sits in the overweight or obese category will often result in a higher life insurance premium. 

Different providers will ask different questions about your health, but keep in mind that this is one factor that you may be able to control in order to bring your premiums down. 

Smoking status 

Smoking rates continue to decline, but for the 6.8% of Kiwis who still smoke every day, those life insurance premiums will likely be higher. 

That’s thanks to the mountains of evidence that smoking causes disease and premature deaths across the board, which naturally makes life insurance providers charge a higher fee. 

Occupation and hobbies 

Do you work in agriculture, which has the highest workplace fatality rate in New Zealand? Do you partake in skydiving or extreme motorsports, which aren’t exactly in the same realm as knitting or cricket when it comes to hobbies? 

Your occupation and hobbies can also play a role in determining your life insurance premiums. What you’ll find is, the more dangerous they are, the higher your premiums may be. Depending on your provider, you may even find that you wouldn’t be covered if your death was caused by one of these dangerous hobbies. This is what is called a policy exclusion. 

Policy features 

The other side of any life insurance premium is the policy itself. Depending on what it offers and how it all works, it may make your premiums go up or down. Your insurance provider may offer additional options such as a serious illness option or total and permanent disability. If you do choose to include these in your cover, you’ll notice a rise in your premium.

Benefit amount 

Arguably the biggest factor impacting your premiums is your benefit amount. This refers to how much your loved ones get as a payout should you pass away.

Depending on your insurance provider and your age, you may have a lot of say in how much you want to be covered for. For example, you could opt for $100,000 to set up your family with a nest egg to cover part of a mortgage or other basic costs, or you could opt for a cool couple of million to really set them up long term. 

When asking yourself if you need life insurance, thinking about how much you’d like your loved ones to receive can be a good place to start when determining your benefit amount.  

Insurance policy duration  

Life insurance policies can also vary depending on their duration and structure. 

Some policies don’t have an expiry date at all and will continue on until you one day pass away, or cancel the policy, however some have what is called a policy term. Common terms for policies start from as little as five and 10 years and can go for 20 or 30 years. 

Generally speaking, short-term life insurance policies will come with lower premiums

Shopping around for quotes 

Whether you’re buying a car or looking for a painter to give your home a spruce up, it can pay to shop around for quotes. That’s no less true for life insurance policies. 

While the price is a major aspect, it’s also important to consider the list of what each policy offers for their premiums. 

Will your beneficiaries get an immediate payment to help with funeral costs, for example? Will your cover increase each year to rise with inflation? Will you receive a payout if you are diagnosed with a serious illness, or receive a permanent disability? 

Weighing up all the benefits of various life insurance policies will help you to understand exactly what you’re getting for your premiums. 

Reviewing your policy 

It’ll feel great getting a life insurance policy locked in. However, unlike buying an air fryer, this isn’t a one-off item to check off your list – at least it shouldn’t be if you want to get the most out of it. 

It’s important to regularly review your life insurance policy to make sure it’s still serving you the way you want, and to make sure it’s accurate. For example, you should be able to increase or decrease your benefit amount, which might be prudent if you take on a large debt such as a mortgage, pay one off, add to your family, or make another major life change. 

You can also review your policy in case you’ve made changes that might affect your premiums. For example, if you quit smoking, you can let your provider know, and they may adjust for that in their calculations. Same story for bringing your BMI down to a healthy weight range. 

Get started with a quote  

With all that in mind, consider exploring OneChoice Life Insurance where you can view the Policy Document and request a life insurance quote. This could be a good way to see how your age, lifestyle, policy preferences and other factors can influence your potential premiums.  

Or, go ahead and give us a call on 0800 630 013 with any burning questions or to chat about your options. 

Disclaimer: This article is an opinion only, provided for general information purposes and shouldn’t be considered or relied upon as professional or personal advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.