Why Do My Insurance Premiums Go Up Each Year?

If you're noticing your insurance premiums creeping up each year, you're not alone, and you're not imagining it either. This is something most policyholders experience over time, but the reasons behind it are often misunderstood. Let’s break it down so you have a clearer picture heading into your next policy review.

CPI Increases: Keeping Cover in Line With the Cost of Living

CPI stands for the Consumer Price Index, which tracks inflation and changes in the cost of living over time. Many insurance policies, particularly those covering things like life, trauma, or income protection, automatically increase each year in line with CPI.

Why Does This Happen?

This annual increase ensures that your policy keeps pace with inflation. For example, if your policy was set at $100,000 five years ago, that sum may not stretch as far today due to rising costs of living, medical treatment, or funeral expenses. CPI adjustments help maintain the real-world value of your cover.

Is It Necessary?

It depends. While it's generally a good idea to keep your cover aligned with inflation, you can choose to decline the CPI increase in a given year if your circumstances have changed, or you simply don’t need more cover.

What Are the Options?

You can either:

• Accept the increase, which raises your sum insured and premium.

• Decline the increase, which keeps your cover (and premium) the same.

• Permanently level off your sum insured, removing future CPI increases entirely.

This is something we can talk through at your review, especially if you're concerned about affordability or changes in your needs.

Age-Based Increases: Understanding "Rate for Age" or "Stepped" Policies

Another major factor in premium increases is something called rate for age pricing. This simply means your premiums go up as you get older, often gradually at first, and then more steeply over time.

Why Does This Happen?

As we age, we’re statistically more likely to claim on our insurance. That could be due to health events, accidents, or age-related conditions. Because of this increased risk, insurers adjust premiums each year to reflect your current age bracket.

The Impact Over Time

While the yearly jumps might not seem too noticeable in your 30s and 40s, they tend to become more exponential in your 50s and beyond. It’s often the biggest single contributor to the increases you see each year.

What’s the Alternative?

One option to avoid this is level premium cover. With level cover, the insurer calculates an average cost based on the length of the policy. You’ll pay more upfront than rate for age, but in the long run (especially if you plan to keep your cover for 15-20+ years) this could be a more cost-effective choice.

It all comes down to your time horizon and what suits your budget now versus later. We're happy to walk you through both options if you're unsure.

Base Rate Adjustments: When the Industry Landscape Shifts

While CPI and age-based increases are predictable, there are other reasons why premiums can rise, and these come down to changes in the underlying cost of insurance itself.

What's Driving This?

Insurance companies set base rates based on things like national health trends, claim volumes, medical costs, and overall risk in the population. If there’s a sharp increase in claims, the cost of providing insurance goes up, and this is reflected in premiums.

A good example:

If half the country were suddenly diagnosed with cancer, insurers would experience a flood of claims. To stay solvent and continue paying out, they'd need to increase base premiums for everyone – not just those affected.

What About Individual Factors?

If your policy has any loadings (like for pre-existing conditions, smoking, or risky hobbies), you might notice steeper increases compared to someone on standard rates. That’s because your risk profile is different, and the insurer is pricing your policy accordingly.

This is where regular reviews become important. We can help check:

• Whether your loadings are still necessary

• If better options are available

• Whether it’s time to restructure or rebalance your cover

If you want to take a closer look at your personal insurance settings, you can get started here.

And if you’d like to understand more about different types of personal insurance and how they work, you can explore them here.

Worth Checking In Regularly

Insurance isn't always a “set and forget”. The policies are designed to evolve with you. That’s why annual reviews are a chance to realign your cover with where you’re at in life. Whether you want to reduce cover, fix the premiums, or simply understand the changes, we’re here to help make it easy.

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Disclaimer:

The information in this article is general information only and is not intended as financial, medical, health, nutritional, tax or other advice. It does not take into account any individual’s personal situation or needs. You should consider obtaining professional advice from a financial adviser and/or tax specialist, or medical or health practitioner, in relation to your own circumstances and before acting on this information.