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Writer's pictureLewis Price-Milne

Why Life Insurance Premiums Increase With Age (And What to Do About It)

If you've ever looked into life insurance, you may have noticed that premiums tend to increase with age. It’s a trend that sometimes catches people off guard, especially when trying to budget for long-term financial planning. But why does this happen, and what can you do to manage the rising cost? This article explores the reasons behind age-related premium increases and suggests practical steps you can take to keep your life insurance affordable.


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Why Do Life Insurance Premiums Rise with Age?


Life insurance premiums are based on a range of factors, including your health, lifestyle, and occupation, but age plays one of the most significant roles. Here's why:


1. Higher Risk of Health Issues

As we age, the likelihood of developing health conditions increases. Conditions such as heart disease, diabetes, and certain types of cancer become more common as you get older. Insurers know this and adjust premiums accordingly, as the risk of an insurance payout increases with age.


2. Shorter Life Expectancy

Insurance providers calculate premiums based on life expectancy data. Simply put, the older you are, the fewer years you are statistically expected to live. This makes the potential period for insurance coverage shorter, but it also raises the risk for insurers, leading to higher premiums.


3. Delayed Start on Insurance

Many people wait until later in life to take out a life insurance policy, often due to other financial priorities like raising a family or buying a home. However, delaying the decision to purchase life insurance means higher premiums when you eventually sign up, as you’re starting coverage at an older age.


What Can You Do About Rising Life Insurance Costs?


There are several strategies you can adopt to manage the cost of life insurance as you age. These steps can help you find affordable coverage that meets your needs without breaking the bank.


1. Start Early

The sooner you take out a life insurance policy, the lower your premiums will be. If you purchase a policy when you are younger and healthier, you'll likely lock in a lower rate that can last for the duration of the policy term.


2. Consider a Level Term Policy

Level term life insurance keeps premiums constant throughout the term of the policy. This means that even as you age and your health changes, your premiums remain the same. This is an effective way to avoid premium increases due to age.


3. Review Your Coverage Regularly

Your life insurance needs may change over time. Perhaps your mortgage has been paid off, or your children have grown up and become financially independent. Reviewing your coverage regularly allows you to adjust the amount of insurance you carry, potentially lowering your premiums.


4. Look Into Policy Conversion Options

Some term life insurance policies come with a conversion option, allowing you to convert the term policy to a permanent one without undergoing a medical exam. This can be beneficial if you develop a health condition as you age, as it locks in coverage at a predetermined rate.


5. Stay Healthy

While you can’t change your age, you can take steps to improve your health. Quitting smoking, maintaining a healthy weight, and managing stress can help you qualify for lower premiums. Some insurers offer discounts for healthy lifestyle choices, so staying in good shape can be a win-win.


Can Premiums Ever Decrease?


In some cases, life insurance premiums may decrease. For example, if you've quit smoking for a period of at least 12 months, you may be able to have your policy reassessed to reflect your improved health status. Similarly, losing a significant amount of weight or resolving a previously diagnosed health condition could also lower your premiums.


However, these situations are the exception rather than the rule. Generally, life insurance premiums increase over time due to the factors discussed above. It’s essential to weigh the costs and benefits of various policy types and coverage levels to find the right balance for your financial situation.


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New Zealand’s Ageing Population


New Zealand’s population is steadily ageing, with the proportion of Kiwis over 65 expected to increase significantly in the coming decades. As this demographic shift occurs, life insurance providers will likely continue to adjust their pricing to reflect the evolving risk landscape. This makes it even more crucial for individuals to be proactive about their life insurance planning, ensuring they are adequately protected without overpaying.


What to Do if You’re Struggling to Afford Life Insurance


If you're finding it difficult to keep up with life insurance premiums, there are a few steps you can take:


Talk to Your Insurance Provider: They may offer options to reduce your coverage temporarily, switch to a more affordable policy type, or provide other solutions to help manage costs.


Seek Professional Advice: Consulting a financial adviser can be invaluable. They can guide you through various options and help you find a policy that fits your current financial situation.


For more on making informed insurance choices, explore your options here.


Making the Most of Your Life Insurance in New Zealand


Life insurance remains an important tool for financial security, especially when supporting a family or managing significant debt. The key is to be aware of how premiums are calculated and take steps to secure affordable coverage sooner rather than later. By understanding the role age plays in life insurance pricing and exploring various policy types, you can find a solution that protects your loved ones without straining your budget.

For personalised assistance, get started today and take the first step towards securing your future.


 

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.


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