Life insurance is a topic that few people want to think about, let alone discuss. However, it’s an essential aspect of securing your financial future and protecting your loved ones from the unexpected. While we all hope for a long and healthy life, the reality is that accidents and illnesses can happen at any time. In this article, we will explore the world of life insurance and the costs of premiums in New Zealand, answer some frequently asked questions, and provide valuable insights to help you make informed decisions.
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How are premium rates determined?
Providers usually charge policyholders individually, based on the policyholder’s unique profile. The most common factors considered when determining life insurance premiums are the following:
- Age: Life expectancy is a big consideration for insurance providers since it determines the risk of them having to pay out on a policy. Since younger people generally live longer, they tend to have lower premiums, while older people often face higher premiums due to shorter life expectancy.
- Gender: Statistically, females tend to live longer than males. For this reason, males are frequently subject to higher premiums.
- Type of cover: Some life insurance policies offer more protection than others. Examples may include payouts for medical costs, accidental death, critical illness, or total permanent disability. With this increased protection often comes an increase in premiums.
- Amount of cover: Being insured for a larger amount means a greater burden for providers when the time comes for them to pay out on a policy. Hence, premiums increase along with the insured amount.
- Lifestyle: Lifestyle choices such as smoking, vaping, alcohol consumption, and risky hobbies or activities - e.g., skydiving or scuba diving - increase the likelihood of health issues and death. Consequently, providers sometimes require individuals with certain lifestyles to pay higher premiums.
- Medical history: Sometimes, prior illnesses lead to further ailments later. Also, some individuals are predisposed to developing certain conditions if they have a family history of the disease. In these cases, providers may apply a loading - an increased premium to compensate the insurer for the increased risk.
While this list is not exhaustive, it will give you an idea of what insurance providers consider when determining your premiums.
How much does life insurance cost?
An ‘average rate for age and gender’ analysis will assist you in understanding how much you can expect to pay for your life insurance premiums.
Age: A study by the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ) revealed that the average annual premium for a life insurance policy in New Zealand varies depending on the age of the policyholder.
Generally, younger individuals pay lower premiums as they are healthier and have a longer life expectancy. Premiums tend to increase as policyholders age, especially once they reach their mid-50s and 60s, due to an increased risk of illness or death.
The study found that the average cost of life insurance in New Zealand for a 30-year-old with a death benefit of $500,000 was $13.60 per week, while the average premium for a 50-year-old was $39.50 weekly. For a 60-year-old policyholder, the average weekly premium was $92.50, and for a 70-year-old policyholder, it was $175.7 weekly.
Be aware that these are just averages, and individual factors, such as health, occupation, and lifestyle, can significantly impact the cost of life insurance.
Gender: The FMA and RBNZ study found that the average premiums for life insurance are higher for males than for females in New Zealand.
For example, a 30-year-old female can expect to pay around $9-$15 per fortnight for a $500,000 life insurance policy, while a 50-year-old female can expect to pay around $36-$50 per fortnight for the same policy.
Similarly, a 30-year-old male can expect to pay around $11-$17 per fortnight for a $500,000 life insurance policy, while a 50-year-old male can expect to pay around $46-$58 per fortnight for the same policy. In 2019, the average annual premium for a male was $1,268, while the average premium for a female was $938.
According to a 2020 report by the Financial Services Council, a 35-year-old non-smoking male in New Zealand can expect to pay an average of $1,600 per year for a life insurance policy with a $1 million death benefit. The cost for a female of the same age was slightly lower, at around $1,400 per year.
While gender has a significant effect on policy premiums, bear in mind that pre-existing medical conditions or high-risk behaviours can also impact the cost of life insurance.
It is a good idea to compare life insurance policies from different providers. Policywise can help you work out how much your premiums would cost based on your age, gender, health, and lifestyle. Book a 5-minute callback with us for in-depth quotes, comparisons, and a recommendation tailored to your needs.
How can I lower the cost of my life insurance premiums?
Life insurance is an essential investment for anyone looking to provide financial security for their loved ones in the event of an unexpected death. However, the price of your policy can vary greatly based on factors such as age, health, lifestyle, and cover amount. Here are some ways to potentially lower the cost of your life insurance premiums:
- Quit smoking and vaping: Smokers and vapers typically pay more for life insurance due to the increased health risks associated. But even if you are currently a smoker or vaper, you should still consider taking out cover. Quitting smoking and vaping can not only improve your health but also potentially lower your life insurance premiums. If you take out cover and quit smoking and vaping in the future, your premiums can be adjusted to the lower non-smoking rates.
- Cut down on drinking: Excessive alcohol consumption can have negative effects on your health and may result in higher life insurance premiums.
- Get in shape: Maintaining a healthy BMI and exercising regularly can lower your risk of certain health conditions, which can translate to lower life insurance premiums.
- Consider major life changes: Major life events, such as marriage, buying a home, or having a child, may affect your life insurance needs and could also impact your premiums. Reviewing your cover periodically and adjusting it as needed can help ensure you have adequate protection at a reasonable cost.
- Look for discounts: Some insurance providers offer discounts if you are a non-smoker, follow a healthy lifestyle, or have multiple policies with the same provider. Be sure to get in touch with Policywise about any discounts that could be available across different insurers.
By improving your health and making smart cover decisions, you may be able to lower your life insurance costs and ensure that you have adequate financial protection for yourself and your loved ones.
Can you afford life insurance?
When researching for a suitable life insurance provider, have a clear understanding of how premiums are calculated so you can keep your costs as low as possible. To find an affordable policy, compare offerings from different insurers and consider cover, features, and benefits. Discussing potential discounts with an adviser and adjusting your cover to fit your needs can help lower your premiums while ensuring you get the best value for your policy. Still got questions or need help? Get some advice from one of our licenced Policywise advisers to help you find the best and most cost-effective deal with top life insurance companies in New Zealand.
Policywise: your partner in making wise insurance decisions
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