Premium
The amount you pay to an insurance company to maintain your insurance coverage. Premiums can be paid monthly, quarterly, or annually, and the amount depends on factors like age, health status, occupation, and the level of cover chosen.
Detailed Explanation
Common Misconceptions
- •That premiums never change - premiums can increase due to indexation, age, or policy changes even with level premium structures
- •That all insurance premiums are tax-deductible - only certain types like income protection are generally tax-deductible in Australia
- •That you can't negotiate premiums - many Australian insurers offer discounts for bundling policies, paying annually, or maintaining good health
Real-World Examples
A 35-year-old non-smoking office worker in Sydney pays $45 monthly for $500,000 life insurance with stepped premiums, which will increase as they age
A self-employed tradesperson pays $180 per month for income protection insurance and claims this as a tax deduction, reducing their taxable income by $2,160 annually
A couple bundles their life insurance and income protection through the same insurer and receives a 10% premium discount, saving $600 per year
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Related Terms
Explore related insurance concepts
- Stepped PremiumA premium structure where your insurance cost starts low and increases each year as you age. The premium 'steps up' annually, reflecting the increased risk of claims as you get older, making it more affordable initially but more expensive over time.
- Level PremiumA premium structure where your insurance cost remains relatively stable over time, rather than increasing with age. The premium is calculated based on your age when you start the policy and remains at that level, though it may still adjust for inflation through indexation.
- Policy TermThe duration for which an insurance policy remains in force, typically running for one year in Australia before requiring renewal. For life insurance, policies are usually annually renewable to age 65, 70, or 99, while some policies offer fixed terms like 10 or 20 years.
- IndexationAn automatic annual increase in your insurance coverage (sum insured or benefit amount) and corresponding premium, typically linked to inflation measures like CPI. Indexation ensures your insurance keeps pace with rising costs and maintains its purchasing power over time without requiring new health assessments.