Insurance premiums are regular amounts of money you pay to your insurer in order to retain cover under your insurance policy so you can make a claim when you need to.
How are insurance premiums calculated?
Insurance premiums are calculated based on risk. Insurance companies are very thorough in weighing up the risks of an event happening to you, so the more likely that event appears, the higher your insurance premium is likely to be.
Calculating risks include taking demographic factors into account. For example, statistics show that young men are more likely to be involved in road accidents than their female counterparts, so that demographic will generally be charged a higher car insurance premium than others. In the same way, people who own homes in high crime areas will tend to pay higher home insurance premiums than those who live in safe neighbourhoods.
Insurance premiums can generally be paid in instalments, for example fortnightly, monthly, or yearly. Some insurers may charge you more for the privilege of paying by the month instead of one annual lump sum.
Can insurance premiums be reduced?
Many insurers offer the option of reducing your insurance premium by several means.
Reduce your risk
By reducing the risk of making a claim on your insurance policy, you can reduce the cost of your insurance premium. For example, you may be able to reduce the cost of your car insurance by something as simple as locking your car in a garage instead of parking on the street. Or you could potentially reduce the cost of your home insurance by installing a quality burglar alarm. Give your insurer a reason to consider you less of a risk and you will most likely qualify for a lower insurance premium.
Choose an excess
An excess is the amount of money you agree to pay out of your own pocket if you make a claim. By choosing an excess or increasing your excess option, you could reduce the cost of your insurance premium. For example, to reduce the cost of your health insurance premium, you could choose an excess of $500, meaning you agree to pay the first $500 of the medical bill if you need to be admitted to hospital. The higher the excess you choose, the lower your up-front premium will generally be.
A waiting period is the period that must lapse from the time you take our your insurance policy to the time that you can claim on it. Some insurance policies allow you to increase your waiting period in order to lower the premium. For example, income protection insurance allows you to choose either a 30 day or 90 day waiting period, and the longer you choose to wait, the lower your insurance premium will be.
Many times, insurers will offer other options to help reduce the cost of your premium, for example, including an age limit on the drivers of your car could help reduce the cost of your car insurance premium. It's important to read the product disclosure statement carefully and ask questions so you know what risks you're taking in order to take advantage of a lower premium, and make sure it's worth it for your circumstances.
These articles are provided as reference material to allow more informed decision making, but are not intended as being a complete source of information on any topic. All readers should make their own independent analysis on the topic to make sure they have considered the aspects that are important to them.