Understanding Insurance Premiums — Why They Change Over Time

Why Insurance Premiums Change

Insurance premiums are not fixed — they can change over time due to several factors. Understanding why premiums change helps you evaluate whether the insurance recommended in your SOA remains affordable and appropriate for your situation.

Age-Based Pricing

Most insurance premiums increase as you get older, because the risk of claiming increases with age. This is especially true for life insurance, TPD, and trauma insurance. Your SOA should disclose how premiums are expected to increase over time, so you are not caught off guard by rising costs later.

Claims Experience and Industry Trends

Insurers review their claims experience regularly. If more people claim than expected, premiums across the industry may rise. This is known as a portfolio premium increase and applies to all policyholders in a particular group. These increases are outside your control but should be explained by your adviser.

Policy Features and Options

Some policies include features like guaranteed renewability, which means the insurer cannot cancel your cover but can still increase premiums. Other features like indexation (automatic increases in cover to keep pace with inflation) will also increase your premiums. Make sure you understand what features are included and how they affect costs.

What to Check in Your SOA

Your SOA should include projections of how insurance premiums are likely to increase over time and whether you can afford the cover in the long term. If this information is missing, ask your adviser for a cost projection before committing.

Why Insurance Premiums Change

Insurance premiums change for several reasons. Age is the most common factor — as you get older, the risk of claim increases, so premiums rise. Health changes can also affect premiums, particularly if you develop a medical condition. Insurers may also adjust premiums across their entire book based on claims experience.

Some policies have stepped premiums that increase each year with age. Others have level premiums that remain constant but start higher. Understanding your premium structure helps you plan for future costs.

Stepped vs Level Premiums

Stepped premiums increase each year as you age. They start lower, making them attractive for younger policyholders, but can become very expensive in later years. Many people find stepped premiums unaffordable by their 50s or 60s.

Level premiums are calculated based on your age at policy commencement and remain level (though insurers may increase them for broader portfolio reasons). They cost more initially but can be significantly cheaper over the long term. Level premiums are generally recommended for policies you intend to keep for many years.

What to Do If Premiums Become Unaffordable

If your insurance premiums become too expensive to maintain, discuss your options with your adviser before making any changes. Possible strategies include: switching from stepped to level premiums if your policy allows it, reducing your sum insured to a more affordable level, removing optional benefits or riders that add cost, or shopping around for a cheaper policy with a different insurer. Each option has trade-offs — switching insurers may mean new waiting periods, exclusions for pre-existing conditions, and new health evidence requirements.

Your adviser can help you find the right balance between affordability and adequate cover. They may also be able to negotiate with the insurer on your behalf. Dropping your insurance entirely should always be a last resort, as replacing cover later may be more expensive or unavailable if your health has changed. Regular annual reviews help prevent premium shock by identifying cost increases early and allowing you to plan ahead.

Frequently Asked Questions

How often should I review my insurance?
At least annually. Your adviser should conduct a review as part of your ongoing service. Review sooner if your circumstances change.

Can I switch from stepped to level premiums?
Some policies allow switching, but you may need to provide new health evidence. Discuss with your adviser whether switching is cost-effective for your situation.

Are premium increases regulated?
Insurers must notify you of premium increases. Increases must be actuarially justified. ASIC monitors insurance pricing practices.

What is a premium loading?
A loading is an additional charge on top of the standard premium, usually due to health conditions, dangerous occupations, or hazardous hobbies. Loadings may be reviewed if your situation changes.

How Insurers Calculate Your Premium

Insurance premiums are determined by actuarial assessment of risk. For life, TPD, and income protection insurance, the key factors include your age (premiums increase significantly as you get older), your occupation (higher-risk occupations pay more), your health status and medical history, whether you smoke, your family medical history, and the amount of cover and policy features you select. Insurers use statistical tables (mortality and morbidity tables) combined with their own claims experience to set premium rates for different risk profiles.

One common misconception is that premiums are based only on your age at policy inception. In reality, for stepped premiums (the most common structure for retail insurance outside super), your premium is recalculated each year based on your current age. This means even if your health remains perfect, your premium will increase annually simply because you are one year older. The rate of increase accelerates as you enter your 50s and 60s. Understanding this structure is important for long-term financial planning, particularly if you expect to hold cover into retirement.

Strategies to Manage Premium Increases

If your insurance premiums are becoming unaffordable, there are several strategies to consider before cancelling cover altogether. You can increase your waiting period (for income protection) from 30 to 90 days, which can reduce the premium by 20-40%. You can reduce your cover amount to a level that still provides meaningful protection but costs less. You can switch from stepped to level premiums (if available), which may be lower in the medium term. You can consolidate cover by removing duplicate policies or overlapping benefits. You can also move some cover from outside super to inside super to spread the cost.

If you are considering cancelling or reducing cover, ask your adviser to model the financial impact. For income protection, even a 30-day waiting period means you need emergency savings to cover the gap. For life insurance, reducing cover by $100,000 might save $100-$300 per year but leaves your family with that much less protection. Your SOA should include premium projections showing how costs are expected to change over time and highlighting when premium increases may become significant, so you can plan accordingly.