How Life Insurance Premiums Are Calculated in Australia

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

Life insurance premiums in Australia can vary widely from person to person, even when two people apply for the same amount of cover. That is because insurers usually assess both the cover being requested and the likelihood of a claim, then price the policy according to their own underwriting guidelines.

This article explains how life insurance premiums are calculated, including the role of age, health, smoking status, occupation, hobbies, cover amount, policy structure, stepped and level premiums, indexation, exclusions and underwriting outcomes. It is general information only and does not take into account your objectives, financial situation or needs.

If you are comparing life insurance quotes, it can help to understand what sits behind the numbers before you choose a policy or apply for cover. You can also compare life insurance in Australia as part of a broader assessment of your options.

What is a life insurance premium?

A life insurance premium is the amount you pay to keep your policy in force. Depending on the policy and insurer, premiums may be paid monthly, annually or on another available payment schedule. If premiums are not paid, cover may lapse after any applicable grace period, which means the policy may no longer provide protection.

In this article, "life insurance" generally refers to life cover that pays a lump sum if the insured person dies or, in some cases, is diagnosed with a terminal illness. Some policies or insurance packages may also include or be combined with other types of cover, such as total and permanent disability, trauma or income protection. Those covers have their own pricing factors and policy terms.

How life insurance premiums are calculated in Australia

Insurers generally calculate life insurance premiums by considering two broad categories:

• Personal risk factors: your age, health, medical history, smoking status, occupation, family history, pastimes and other factors that may affect the risk of a claim.
• Policy design factors: the amount of cover, premium type, policy features, indexation, optional benefits and any special terms applied by the insurer.

Each insurer uses its own underwriting approach. This means two insurers may assess the same applicant differently. One may offer standard terms, another may charge a higher premium, and another may apply an exclusion, postpone a decision or decline the application. Outcomes depend on individual circumstances, the information provided and the insurer's criteria.

Main life insurance cost factors

The following factors commonly influence life insurance premiums in Australia. Not every factor will apply in the same way to every policy, but together they explain why quotes can differ.

Age

Age is one of the most significant life insurance cost factors. In general, premiums tend to increase as you get older because the likelihood of illness or death generally rises with age. This is particularly noticeable with stepped premiums, which are designed to increase as the insured person ages.

Applying earlier in life may sometimes mean lower initial premiums, but it does not guarantee affordability over the long term. The type of premium, policy structure and future increases still matter.

Cover amount

The sum insured, or cover amount, has a direct impact on premiums. A higher insured benefit generally costs more because the potential claim payment is larger.

Choosing a cover amount is not simply about selecting the largest benefit available. It involves considering debts, household expenses, dependants, future education costs, existing savings, superannuation and the period of support your family may need. For a more detailed discussion, see this guide to assessing how much life insurance you may need.

Smoking and nicotine use

Smoking status can have a major effect on life insurance premiums. Insurers generally treat smokers and some nicotine users as higher risk because of the health risks associated with tobacco and related products.

Insurers may ask about cigarettes, vaping, nicotine replacement products and other tobacco or nicotine use. The way these are assessed depends on the insurer's rules. If you previously smoked, the insurer may ask how long it has been since you stopped.

Health and medical history

Your health and medical history remain central to underwriting life insurance. Insurers want to understand your current health, past medical issues, ongoing treatment, medications, test results and any diagnosed conditions that may affect future claim risk.

Health factors that may be considered include:

• height, weight and body mass index;
• blood pressure and cholesterol;
• diabetes, heart disease or respiratory conditions;
• cancer history, including type, stage, treatment and time since recovery;
• mental health history and treatment;
• sleep disorders, neurological conditions or autoimmune conditions;
• alcohol or drug-related health issues;
• current medications and specialist reviews.

Having a medical condition does not automatically mean you cannot obtain life insurance. The insurer may look at the severity of the condition, whether it is stable, how it is managed, how long ago it occurred and whether there have been complications.

Family medical history

Some insurers ask about the medical history of immediate family members, particularly parents and siblings. They may look for patterns involving hereditary or familial conditions such as certain cancers, heart disease or other serious illnesses.

You cannot change your family history, but it can form part of the insurer's overall risk assessment. If a family condition has not affected you, or if you have had relevant screening, the insurer may consider that information as part of the application.

Occupation

Your occupation can affect premiums if your work involves increased risk. Examples may include jobs involving heights, underground work, aviation, offshore work, heavy machinery, hazardous substances or physically dangerous environments.

Insurers may also consider whether your role is office-based, manual, supervisory, part-time, casual or self-employed. The impact varies depending on the policy type and insurer.

Hobbies and high-risk activities

Some hobbies and activities can influence premiums or policy terms. These may include aviation, motor racing, rock climbing, scuba diving, skydiving, backcountry skiing, martial arts or other higher-risk pursuits.

Insurers usually want to know how often you participate, your qualifications or experience, where the activity takes place and whether you compete professionally or recreationally. For more detail, read our guide to how hobbies and high-risk activities can affect life insurance costs.

Gender or sex-based pricing

Some insurers may use sex-based actuarial assumptions when pricing life insurance, where permitted and relevant to the product. This can affect premiums because claims experience and life expectancy assumptions may differ across groups.

The way this is applied can vary between insurers and products, so it is another reason that quotes may not be identical across the market.

Policy features and optional benefits

The more benefits a policy includes, the more it may cost. Optional features or linked covers may increase premiums because they expand the circumstances in which a benefit may be payable.

Examples may include optional trauma cover, total and permanent disability cover, income protection, premium waiver benefits or other additional benefits. The terms, eligibility criteria, definitions and exclusions should be read carefully before deciding whether a feature is appropriate.

Stepped and level premiums

One of the most important pricing choices is whether the policy uses stepped premiums, level premiums or another available premium structure. The right option depends on your circumstances, expected cover period, affordability and policy availability.

It is important not to assume that "level" means premiums will never increase. Policy terms, indexation, taxes, fees, benefit changes and insurer repricing may still affect the amount you pay.

Indexation and increasing cover

Many life insurance policies offer indexation, which increases the sum insured each year to help the benefit keep pace with inflation or rising living costs. If your cover increases, your premium usually increases as well.

Indexation can be useful for maintaining the value of cover over time, but it can also make premiums less affordable if increases continue for many years. Some policies allow you to decline an indexation increase, but the rules and consequences vary by insurer.

How underwriting affects your premium

Underwriting is the process an insurer uses to decide whether to offer cover, and on what terms. It usually involves reviewing your application answers and may involve further questions, medical records, blood tests, urine tests or other examinations.

The underwriting process helps the insurer place an applicant into a risk category. Depending on the assessment, the insurer may offer:

• standard terms: cover at the insurer's standard premium for that product and applicant profile;
• a premium loading: a higher premium to reflect increased risk;
• an exclusion: cover with specific circumstances excluded from the policy;
• a modified benefit or condition: altered terms, depending on the insurer's rules;
• postponement: the insurer delays a decision until more time or medical information is available;
• decline: the insurer decides not to offer cover.

These outcomes depend on the insurer's underwriting guidelines and your individual circumstances. If you are unsure how to approach underwriting questions, you may wish to speak with an appropriately licensed adviser or broker. You can learn more about the support available through life insurance brokers.

Medical examinations and health questionnaires

Not every life insurance application requires a medical examination. Whether one is needed may depend on your age, cover amount, health disclosures, occupation, pastimes and the insurer's underwriting requirements.

Where medical evidence is required, it may include:

• a detailed personal statement or health questionnaire;
• height, weight and blood pressure measurements;
• blood or urine tests;
• reports from your usual doctor or specialist;
• additional tests if the insurer needs more information.

The results can affect the premium or terms offered. For example, an insurer may want to know whether a condition is well managed, whether test results are within expected ranges, and whether there has been recent treatment, hospitalisation or follow-up.

Why full and accurate disclosure matters

When applying for life insurance in Australia, you generally have a duty to take reasonable care not to make a misrepresentation to the insurer. In practical terms, this means you should answer application questions carefully, honestly and completely.

Leaving out health information, underplaying a risky hobby or guessing answers can create problems later. If an insurer discovers that important information was inaccurate or incomplete, it may affect the policy or a future claim, depending on the circumstances and applicable law.

If you are not sure how to answer a question, it is usually better to ask for clarification rather than making assumptions.

Can you reduce the cost of life insurance?

There is no guaranteed way to reduce life insurance premiums, and you should be cautious of any claim that suggests a particular outcome is assured. However, some steps may help you make more informed and affordable choices.

• Choose an appropriate cover amount: Too much cover can increase premiums unnecessarily, while too little may leave a shortfall.
• Review optional benefits: Additional covers can be valuable, but they also affect cost.
• Compare policy structures: Stepped and level premiums can have very different long-term cost patterns.
• Consider your payment frequency: Some insurers price monthly and annual payments differently, so check the policy terms.
• Maintain your health where possible: Not smoking, managing chronic conditions and attending regular check-ups may assist underwriting, depending on the insurer.
• Review cover after major life changes: Marriage, children, a new mortgage, divorce, business changes or retirement planning may change the amount of cover you need.
• Compare insurers: Different insurers may assess the same risk differently.

Reducing premiums should not be the only goal. The policy also needs to match the purpose of the cover, the definitions that apply, the exclusions and your ability to maintain premiums over time.

Questions to ask when comparing life insurance premiums

When reviewing life insurance quotes, consider asking:

• Is the premium stepped, level or another structure?
• How can the premium increase in future?
• Does the quote include indexation?
• What cover amount has been quoted?
• Are optional benefits included or excluded?
• Are there any loadings, exclusions or special terms?
• What medical or financial evidence is required?
• Does the policy sit inside or outside superannuation?
• What happens if I miss a premium payment?
• How often should I review the policy?

Conclusion

Life insurance premiums in Australia are calculated using a combination of personal risk factors and policy design choices. Age, smoking status, health history, family medical history, occupation, hobbies, cover amount, premium type, indexation and optional benefits can all influence the price and terms offered.

Because each insurer applies its own underwriting criteria, quotes can vary and outcomes are not guaranteed. Understanding the main cost factors can help you compare policies more confidently, ask better questions and choose a level of cover that is practical for your circumstances.

Before applying, take the time to consider how much cover you need, what you can afford over the long term and whether professional guidance may help you navigate underwriting and policy terms.

Published: Saturday, 15th Mar 2025
Author: Paige Estritori