There’s no single answer to this question, because the cost of life insurance depends on what you need and your cover limits. However, you probably already know that and are just looking for a rough idea to see if it’s affordable. And you need to keep an open mind, because there are multiple ways to adjust the price you pay for life insurance cover.
This article is designed to help you understand what affects the cost of life insurance, using life cover as an example. It also covers the main features to look for when comparing one policy with another, because they’re all different. First up, here are some very approximate examples of what life cover might cost.
Examples of what life cover might cost in New Zealand
|Annual cost estimate
|Male and female combined (2 people)
What affects the cost of my life cover?
The fee you pay for life insurance is known as a premium. You can usually choose a premium that gradually increases each year or one that starts higher but remains the same.
When you apply for life insurance, an underwriter will consider the information you’ve been asked to provide and calculate your premium based on the average cost of insuring people similar to you in the past.
Here are the main things that can affect the premium of any particular life insurance policy when you apply.
- Age: In the table above, you can clearly see that the older you are, the higher your premium will be. That’s because there’s more chance of you making a claim.
- Gender: On average, men die younger than women, so you’ll pay a higher premium if you were born a male.
- Smoking: If you use tobacco products or e-cigarettes (vapes) your premium can be about 80% more expensive than a non-smoker’s, depending on your age. If you haven’t smoked in the last 12 months, you’re usually considered a non-smoker. If you quit while you’re insured, after 12 months you should talk to your insurer about switching to a lower non-smoker premium.
- Health conditions: If you have a chronic health condition an insurer might not offer you cover at all. If they do offer cover, they’ll probably charge a higher premium or exclude any claims arising from that condition. For some conditions this might only be for an agreed period, provided the condition doesn’t get worse or re-occur.
- Medical history: Some previous medical treatments and conditions, including those of family members, might also affect your premium. That’s because they’ve caused other people to make a claim in the past.
- Occupation: Some jobs, such as forestry work or underground mining, have a history of more risk than something like office work. If you have a high-risk occupation your premium will be higher.
- Hobbies and pastimes: High-risk pastimes, such as skydiving or motor racing, are likely to attract a higher premium or be specifically excluded from your cover.
- The amount of cover: As you’d expect, the higher the agreed pay-out, the higher your premium will be. But if you double the cover from $500,000 to $1 million for example, the premium might be about 60% more, not twice as much.
What to look for when comparing life cover policies
No two policies are exactly the same. It’s important to shop around and identify policies with features that suit your situation and future goals. Here are a few examples of things to look for:
- Flexibility: How easy would it be to increase or decrease your cover as your needs change over the years? Will you have to provide updated medical information and risk having something new excluded? Does the policy let you adjust your cover following certain life events, such as getting married or divorced, buying a house or having a child?
- The term: How long does the policy last for? Is it a set number of years or to a particular age? How does that support your expected needs?
- Terminal illness cover: Will the policy make a part or full pay out if you’re diagnosed with a terminal illness and given less than a specified time to live?
- Funeral cover: Does the policy include an immediate contribution for funeral costs, while the remaining pay-out is processed along with the rest of your estate?
- Financial advice: Does the policy offer a level of free financial advice for its beneficiaries?
What are the different types of life insurance?
Before investing in life insurance of any type, it pays to get experienced advice from a financial adviser or insurance broker. They can recommend types of cover that are best suited to your needs and budget. In the meantime, our helpful guides can help you prepare.
See our complete guides to:
Life cover (this is what most people call life insurance)