How Do Life Insurance Companies Calculate Premiums?

For Australians, the cost of the premium is the most significant factor when deciding which life insurance policy to buy. Product features, claims reputation, and service reliability are the other criteria people look for after the premium cost.


Insurers, on the other hand, look at the following main factors in calculating the premium cost they’ll give to applicants.


  • Age

Illnesses and risks of injuries increase as you grow older. The younger you are when you apply for a life insurance policy, the lower the cost of the premium you’ll pay for.


The Australian Government introduced the Lifetime Health Cover (LHC) loading to encourage Aussies to apply for a private hospital policy earlier in life. According to this policy, you won’t incur loading for the length of the policy term if you avail of it before 1 July of your 31st birthday. Otherwise, the premium will accrue 2% annually until you reach the 70% loading cap.


This means that if you take out a private hospital policy at the age of 40, you’ll need to pay 20% just for the LHC loading, aside from the associated premium charges.


  • Gender

Males typically pay more for insurance compared to females. According to Canstar, a 30-year old, non-smoking woman would pay around $35 per month for her life insurance policy to get a benefit of $500,000. However, for the same criteria, a man would pay 30% more at $45 per month on average.

  • Occupation

Occupations that have higher risk hazards are red flag to insurers. These jobs equate to higher insurance premiums because the chance of making a claim increase.


Accountants, teachers, store attendants, receptionists, clerks, and retail managers pay relatively lower premiums compared to chefs, waiters, truck drivers, electricians, and car mechanics because the latter are more prone to accidents.


  • Health

Health plays a big part in calculating the cost of premiums. Healthy individuals pay relatively less premium compared to those who have unfavourable health history. Those who have hobbies or habits that put them at a higher risk of getting ill are usually charged higher compared to those living a healthy lifestyle.


Smokers and non-smokers, for instance, are weighed differently with the former paying up to 80% more for premiums compared to the latter. To insurers, smoking encompasses the use of nicotine-based products and e-cigarettes.


Older, smoking men are more susceptible to health issues, so they’re often hit with a higher premium loading or surcharge.


  • Claims history

Your claims history will also play a part in the calculation of the premium cost on life insurance policies. The more frequent you make a claim in the past, the higher the premium you’ll be paying for a life insurance. Insurers will see that you’re a high-risk candidate with a big chance of making a claim, so they’ll charge you a higher rate compared to someone who doesn’t have any claims history.



Taking a life insurance policy at a young age is the best method to avoid loading and higher charges associated with your age and health. Getting a policy past the age of 31 will incur additional costs, aside from being assessed as a higher-risk candidate.

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