Life Insurance Cost Explained
Insurers will mainly base your life insurance rate on your health and age. Additional factors include your weight, smoking (vaping or any nicotine product), occupation, and even your family health history.
Price will no doubt factor in how much life insurance cover you will buy and might determine what type of policy you choose.
By understanding what impacts your premiums before you get a life insurance quote, you can better understand your options when choosing what’s best for you and your family.
You can learn how insurers price life insurance and how to get a low-cost policy to protect your family.
In this article, we look at:
How life insurance rates are determined
Life insurance premiums are based primarily on life expectancy. Therefore, the younger and healthier you are, the cheaper your premiums.
Insurers in New Zealand typically classify applicants using terms like standard or sub-standard, with the standard being the healthiest category. Insurers then calculate premiums based on your risk class.
Your health
Your health status is one of the most important factors in determining your premiums.
The healthier you are, the less likely you are to die, and thus cheaper to insure.
During the underwriting process, you’ll have to answer some questions about your health and your family health history.
The insurance company may also request a Personal Medical Attendance Report (PMAR) from your doctor to get their assessment of your health as well.
And sometimes the insurer can request a new medical or blood test be done free of charge.
This new medical or blood test can be done at your doctor’s clinic or the insurer will arrange for a mobile nurse, to set an appointment with you and your home or office. Either way it’s free of charge.
Some things that might result in higher premiums include:
- Angina
- Arthritis
- Blood Pressure
- Hypertension
- High cholesterol
- Hypoglycemia
- HIV/AIDS and hepatitis
- Recreational drugs including marijuana
- Nicotine use
- Chronic illness
If you use marijuana, your insurance company might also take that into consideration or even classify you as a smoker.
However it’s still possible to find providers to accommodate your lifestyle and health status whether you’re a smoker, former smoker, or marijuana user so it’s important to shop around.
Similarly, chronic illness or pre-existing conditions also tend to warrant higher premiums, but it’s possible to find life insurance coverage with the right provider.
It’s already proven that active people live healthier and longer.
Body Mass Index (BMI)
BMI has been used as a key indicator for health. There is significant medical evidence linking a high BMI to increased chances of a person developing heart disease, diabetes, cancer, and liver problems.
A high BMI can complicate the recovery from some conditions and put extra strain on joints.
For these reasons, customers who have a high BMI require a loading that reflects the increased risk.
The good thing is that, unlike some conditions, we can review a loading for BMI when a weight loss is stable and any other types of blood are within normal range.
Your smoker status
Since smokers are at a higher risk of developing health issues such as respiratory disease, life insurance for smokers tends to be more expensive.
If you have not smoked at all for 12 consecutive months, you are considered a non-smoker.
Smoker rates apply if the following forms of nicotine or smoking alternatives have been used in the last 12 months:
- Cigarettes
- Taylor-made and self-rolled own cigarettes
- E-Cigarettes / Vaping (with or without nicotine oils)
- Nicotine patches
- Cigar smokers – 1 or more per week
- Chewing tobacco
- Pipe smoker – 1 or more per month
- Hookah/Shisha – 1 or more per month
- Bidi – daily use
- Marijuana – daily use
Your age
According to Stats New Zealand, life expectancy in New Zealand is 83.6 years for women and 80.2 years for men.
So women will always pay less for life insurance compared with a man of the same age and health with similar risk factors.
Key facts
Life expectancy at birth is 80.2 years for males and 83.6 years for females.
Life expectancy at age 65 is 19.6 years for males and 21.7 years for females.
Waiting to buy will always be more expensive.
Your occupation and lifestyle
Although most occupations are insurable at standard rates for life insurance, certain professions are hazardous and additional premium (loading) is required to cover the extra risk(s) incurred.
A more significant number of occupations will require extra premium and/or exclusions regarding disability benefits.
Not all hazardous risks are physical; there may be one of several other risks, which might include:
- Physical danger, e.g. working at heights or with explosives
- Environmental risk, e.g. mining, asbestos removal/exposure
- Moral risk, e.g. exposure to drugs, criminal activities or Sexually Transmitted Infection(s) (STIs)
- Sensitivity to claim – people with strict medical criteria, e.g. Pilots
- Trade sensitive – jobs that are subject to ups and downs, e.g. real estate
- Health risk, e.g. working excessive hours or specific medical conditions
It is essential to disclose any hazards involved in your occupation fully. This will allow the underwriter to correctly assess those risks and apply terms, if required, appropriately.
Gender
Life insurance rates are related to mortality tables.
Life expectancy tables will show the average life expectancy for your gender and age. Smoking, participating in dangerous activities, or having health problems will also affect your mortality rate.
Statistics from Stats NZ show women live an average of 3.4 years longer than men. And this is the simple reason why the cost of life insurance cover is lower for women.
Why is there a difference, you might ask? Men are considered a higher risk.
Methodology
Average life insurance costs by age were calculated based on quotes from five of the largest insurers:
- Asteron
- AIA
- Partners Life
- Fidelity Life
- Chubb
Costs shown are for a man or woman in good health.
Below is the breakdown of each rate class:
- Cover accepted
- Cover accepted with special terms
- Cover deferred due to special circumstances
- Cover declined
How much does life insurance cost?
If you want to know a little more, you can learn about what exactly goes into the cost of your policy. Knowing what goes into the price before you get life insurance quotes can help you make the best decisions during the application process and find a policy that fits your budget.
Average rate for age life insurance cost by gender
We started our research by showing the change in average life insurance rates for different age groups. Life insurance companies will use age as a cost factor for life insurance cover. Rates will continue to increase as you age due to decreased total life expectancy.
The rate for age life insurance quotes below is for a healthy man and a healthy female with a death benefit of $500,000.
Average cost of life insurance for 30 yo and 50 yo female
Average cost of life insurance for 30 yo and 50 yo male
Besides age, life insurance quotes will vary depending on your gender. On average, men will pay 25.5% more for rate for age life insurance than women.
This is due to life expectancy because men tend to have a shorter life expectancy compared to women. Life insurers take this into account and thus will charge a man more expensive rates than a woman who is the same age.
Rate for age vs level policy
Most insurance policies sold in NZ are Rate for Age policies which means the price of your life insurance cover increases because of your age.
Rate for Age policies allow you to insure a more significant sum because it’s cheaper in the early years but becomes more and more expensive as we reach our 40s, 50s and 60s.
Comparing the cost of life insurance is what smart people do.
The level premium life insurance cover can save an enormous sum of money in the long term.
Level life insurance costs you more for the insurance cover at first, but after 5 or 7 years, break even with the ‘Rate for Age’ premium. After that, you’re ahead – meaning you have ultra-low-cost Life Insurance you can afford to keep in your later years when most others are letting it go due to the cost.
How can I lower the cost of life insurance?
Your overall medical history and other factors may be out of your hands. But you can take a few steps to potentially lower your premium.
Quit smoking
If you’re a smoker, a logical step to reduce your premium — and improve your health — is to kick the habit as soon as you can. Doing so can help you avoid rates that are double or more that of a nonsmoker.
Cut down on drinking
A few drinks won’t have much of an effect on your rates. But if you tend to enjoy more than a drink a day, consider reducing your alcohol intake for lower rates.
Get in shape
Insurers consider your weight and how much you exercise an important part of determining risk. A lower BMI typically results in cheaper rates.
Consider major life changes
Your life insurance policy should change with your needs. For instance, after your children are grown and supporting themselves, you can often decrease your coverage.
Look for discounts
A trick to keeping more money in your pocket is to look for opportunities to save. Talk with your provider about the possibility of cheaper premiums with a family or joint policy, rather than an individual plan and consolidating cover with one provider.
Join a wellness program
With the AIA Vitality NZ app Kiwis can easily track their health and be rewarded for making healthier choices. AIA insurance has moved from being a payer of claims to a partner in the health and wellbeing of our customers. It is a total culture revolution in the insurance market since customers receive rewards and discounts for healthy habits.
FAQ's
Life insurance for men compared to women is more expensive because the likelihood of men dying is higher compared for women dying.
Have your insurance payments increased by between 10-15% year on year?
If so, it’s time to review your insurance. Book a complimentary consultation here to review your insurance.
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