Life Insurance: How Much Does it Cost?
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Life Insurance: How Much Does it Cost?

Reema Steitie

Reema Steitie

26/03/2021 • 9 minute read

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Life insurance can be a delicate topic. We know that it’s impossible to put a price on life. However, life insurance can be worth the financial peace of mind. It gives you the comfort of knowing that your family will be taken care of if something were to happen to you. For this reason, life insurance can be a valuable asset. You will thus need to carefully consider the type and cost of life insurance before locking yourself into a contract.

So, how much does life insurance cost? Note that life insurance prices are tailored to the individual customer. Because of this, it’s difficult to give you an approximation of how much life insurance will cost for you. What we can provide, however, is a comprehensive guide regarding the factors that will influence the cost of life insurance. This article will run through these factors that you will need to consider before settling for a particular life insurance offer, as well as how you can work to reduce your life insurance premium.

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Key takeaways:

  • The cost of your life insurance payments will depend on several factors, especially your age, gender, and smoking status.
  • Not smoking or engaging in risky hobbies are two of the easiest ways to reduce your premiums.

Factors that will affect your life insurance premium

The cost of life insurance will, of course, depend on a variety of factors. Most significantly, your age, gender and smoking status will contribute to the price. Other such factors include, but are not limited to:

  • Current health and medical history;
  • Occupation;
  • Pastimes and hobbies;
  • How you purchase your cover;
  • The amount of cover you take out; and
  • The type of cover you purchase.

So, why do some factors contribute more than others?

Age

Age is the number one factor in determining life insurance premiums. The older you get, the higher the chances are that your insurer will have to payout your policy. This means your premium will slowly increase as you grow older.

Gender

Typically, males pay more for life insurance than females. This is because women have a longer life expectancy, and are considered of lower risk than males.

However, recent research has revealed that females may pay 32% more for income protection insurance. This is because more income protection claims come from women. Insurers have stated that these claims often relate to pregnancy and birth-related problems, cancers that strike earlier for females, and musculoskeletal problems which are more likely to occur for women.

Smoking status

Tobacco smoking has been estimated to kill 19,000 Australians a year. Further, the Centers for Disease Control and Prevention in America have found that smoking can cause premature death. On average, the life expectancy for smokers is at least 10 years shorter than for non-smokers. Given that the life expectancy for Australians is 82.1 years, smokers are losing approximately one day per every eight days of their lives. This is a significant amount of time and something that insurers view very seriously when it comes to the cost of life insurance.

Due to this, smoking is seen to be associated with health risks, medical complications, and even premature death. Insurers thus see smoking as a way to increase the premium you will pay. The increased premium offsets their risk, as the statistics show that there’s a higher chance they will have to payout your policy.

Typically, your insurer will assess your smoking status and the risks it poses by asking three questions:

  • Whether you are a casual or heavy smoker;
  • How long you have been smoking; and
  • Your current health in relation to your smoking habits.

Though you may not be a daily smoker, casual smokers will also be hit with higher premiums. Your insurer will want to know an estimate on how many cigarettes or packs you smoke per day. Further, the longer you have been smoking the more risk this poses to your health. If you have smoking-related health issues, such as cancer, heart and lung disease, and strokes, your premium may be higher.

Current health and medical history

Your insurer will look not only at your current health but also at your medical history. The healthier you are, the less your life insurance will cost. Note that insurers may also check your family medical history to see if there is any likelihood that you may suffer health problems in the future.

Occupation

If your occupation places you in dangerous situations, you’ll likely pay more for life insurance. On average, white-collar workers (think office jobs) pay 21% less than blue-collar workers (think active, outdoor jobs). This is because white-collar workers are less prone to being injured or killed at work.

Pastimes and hobbies

People who lead safe lifestyles, without many risky activities, are likely to qualify for a lower premium. If you regularly engage in ‘dangerous’ or ‘risky’ activities, then you may pose a higher risk to insurers. Dangerous or risky activities may include hobbies such as skydiving, scuba diving, or high alcohol use.

How you purchase your cover

You can purchase life insurance directly from the insurer, from a financial advisor or as part of your superannuation. Each method may cost a different amount, so it’s best to shop around and do your own research.

Amount of cover you purchase

The higher the amount of coverage you purchase, the more it will cost you.

Type of cover you purchase

There are many different types of life insurance. The typical life cover, for example, may cost more than something like trauma insurance or total and permanent disablement cover.

How you can work to reduce your life insurance premium

As you can see from above, there are many factors that will affect the price of life insurance. Obviously, some factors are unavoidable and unchangeable, such as your age and gender. However, there are some factors that you can work towards improving. The two main ones we discuss below are smoking and dangerous and risky hobbies.

Smoking

Last year, the Australian Bureau of Statistics reported that 13.8% of Australians were daily smokers over the years 2017 to 2018. In all, this equates to just under one in seven people or 2.6 million adults.  However, there is some good news. As seen below, the Bureau also reports that the proportion of adults that have never smoked has increased over the years. This means that the younger generation of Australians are taking the risks of smoking seriously.

2007 – 2008 2014 – 2015 2017 – 2018
49.4% 52.6% 55.7%

So, consider kicking the habit to reduce your life insurance premium. If you have recently quit smoking, speak to your insurer about whether you can be considered a non-smoker. Some insurers will have a time frame, such as 12 months since quitting, before you can be considered a non-smoker. In addition, some policies will allow you to change your status to non-smoker partway through your cover.

Dangerous occupations and hobbies

Avoiding lifestyles that may be considered ‘risky’ by insurers can save you money on your premium. Before you head out skydiving, consider how it will affect your life insurance premium. In addition, consider cutting down on drinking if your alcohol habits are affecting your health.

However, it can be harder to change occupations if yours is considered dangerous or risky. Speak to your insurer to see what they offer for people in your occupation. Some insurers may disqualify you for having a dangerous profession, whilst others may offer special deals. It’s a good idea to shop around to see how your occupation affects premiums with different insurers.

How much life insurance do I need?

Lastly, it’s wise to consider how much life insurance you will need. As a population, Australians are underinsured. According to PwC, life insurance premiums as a proportion of GDP in Australia is comparatively smaller than in other developed countries. For example, it is 1.5 times smaller than Sweden and up to 2 times smaller than Japan.

So, why is this the case? The survey attributes this to a lack of trust that the Australian population places in life insurers. This could partly be affected by the varying cost of life insurance, which differs depending on a variety of aspects. However, it could also be due to natural scepticism. The same survey found that though 78% of Australians viewed life insurance as important, only 42% believe life insurance will help in their or their family’s time of need. Some people may feel as if it’s a waste of money to pay for something now when the only benefit they get is based on some unlikely future event.

However, this is not the case. Life insurance is designed to protect you and your loved ones if something unfortunate were to happen to you. Consider how your family would cope if you were injured and unable to work or care for them. Life insurance doesn’t just help with medical bills and funeral costs, but also mortgage repayments and other debts. So, let’s consider how much life insurance you may need.

Drawing up a budget

First of all, note your monthly income. Then get out your bank statements and figure out how much you and your family spends each month. Consider all expenses, from school fees to grocery shopping to take-away on Friday night. Further, calculate your debts, such as mortgage repayments and credit card debts.

Affordability

From your budget, you can work out how much you save on average per month. This will show you two things. Firstly, it shows you how much you can afford in monthly life insurance fees. The more savings you have, the higher amount of coverage you can pay for. Secondly, the higher your monthly savings, the less you may need to rely on an insurance payout if things go pear-shaped. You may, therefore, be able to opt for lower coverage.

The type of life insurance and amount of coverage you are willing to pay for is a personal choice. Once you work out how much you can reasonably afford, do your research about what type and what amount of insurance suits your needs. In addition, speak to your insurer to see what options are available.

Retirement

Lastly, consider when you will retire. Your life insurance requirements may change as you get closer to retirement. At this time, you will likely have some savings to support you for the remainder of your life. Your kids will likely be grown up and able to support themselves, and your partner may have a retirement plan in place.

If retirement is a long way off or you haven’t considered at what age you will stop working, a good rule of thumb is to plan until 65. This is the average age of retirement for those Australians who intended to retire.

A note about Oiyo

At Oiyo, we’re trying to change the way we talk about money. We’re not financial advisors, but we can offer helpful insights and information on finance to help you navigate your finances.

We write helpful guides covering everything from personal finance to loans to insurance. Our aim is to make it easy for Australians to have access to simple, to-the-point financial guides. So, whatever financial query it is that you have, Oiyo is here to help!

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Reema Steitie

Written by Reema Steitie

Reema Steitie is a contributing writer for Oiyo, covering topics across the finance and insurance sectors. She is currenty studying a double degree in Business and Communications at the University of Queensland. Reema has worked as a Content Writer within the finance sector and is a passionate advocator for social causes. In her spare time, you can find her at the movies indulging in her love of film.

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