Why insurance premiums sometimes fluctuate
Insurance is something that you probably aim to hold through much of your life, so you have the peace of mind of knowing it’s there when you need it.
But over the years, you may notice what you’re being asked to pay for your cover doesn’t stay the same.
Here are a few reasons why your- premium might change.
Inflation
Some policies are linked to consumer price index (CPI) movements, to ensure that the amount you are covered for retains its real value as inflation increases. That means that the premiums generally rise to keep pace with the increased level of cover. This is sometimes offered as an option on policies – your adviser can help you work through whether it’s the right one for you.
Your age
Generally as you age, your insurer adjusts how risky it believes covering you to be, which can mean your premiums increase over time. Insurers look at statistics to help them determine how likely you are to claim on a policy and adjust the premiums accordingly. Generally, the increases are small through the early part of your life but can pick up more quickly as you get older.
Changes to your policy
If you’ve made changes to your policy, it can affect your premiums. For example, you might have opted for a higher excess or a longer stand down period, which can reduce premiums, or requested new options added on, which can also make the premium higher.
Industry factors
Insurers have to keep an eye on what is going on in the wider insurance environment. If there are more claims for a particular type of cover than expected over a sustained period, the insurer may need to rethink what it charges. Policies can sometimes be repriced to keep them sustainable.
More broadly, if interest rates are rising this can also have an impact on the cost of providing insurance, as can moves by reinsurers. Reinsurers act as insurers for the insurers, providing backup in situations where there are large claims. When they see risks increasing, or more claims being paid, it can change what they charge insurers.
Level options
Some people choose to avoid the age-related increases by opting for level cover. This can work for those who want to hold insurance for a long period of time. It usually starts out more expensive, but then premiums do not increase as the insured ages – only other factors such as inflation adjustment if you have added that option.
Keep your premiums down
There are ways to reduce what you pay for insurance premiums, if you are concerned. This might mean opting out of any additional extras in your policies, maybe extending your wait period for income protection, or opting out of inflation indexation. As advisers, we can help you look at the options. It’s important to understand the implications of these decisions – a longer wait period may mean you need more money saved to fall back on, and opting out of inflation indexation may mean you have less available to you, in real terms, if you claim in future.
Like to chat?
Whatever your insurance questions, we are here to help. Drop us a line or give us a call, we’d be happy to help you assess your current protection, or determine what more you might need.
The information contained in this publication is intended for general guidance and information only. It has not been personally prepared for you. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult with us before making any investment decision. Historical market performance may not be indicative of future market performance.