Insurance can play a big part in protecting the lifestyle, people and possessions we care about; sometimes it can be confusing to see the price of our insurance premiums increase.
“To understand what makes insurance premiums rise, it’s first useful to know a bit more about how they work,” says AdviceFirst adviser Mitch Haak. “In terms of costs, two of the bigger items are costs related to claims and operational costs to run the insurance business.”
The good news is that there are options to manage the potential of cost increases through the use of products such as level premium.
“This means your insurance costs are more stable over time,” says Mitch. “While you are likely to pay more at the start, if you intend to hold your insurance cover for a long time it can cost you less.”
Mitch suggests talking to your adviser if you would like to know more about options to manage insurance affordability.
So how are insurance premiums calculated? Mitch says insurers calculate premiums based on a whole set of factors, including demographics: age, gender, occupation etc. and your personal risk profile. “Your demographic details and risk profile will mean your initial premium rate falls into the same bracket as others in similar situations,” says Mitch, “Clients pay premiums to insurers so that if something unexpected happens to them the insurance company can use the pooled premiums from similar clients to help cover the financial impact for the individual claiming. Therefore, premium costs need to adequately cover the potential costs of future insurance payouts.”
Mitch says there are a few reasons why your insurance premiums can rise:
- Claim frequency and cost
Making more claims than anticipated or larger claims than the initial calculations allowed for is a reason for rising premiums. - Changes in risk assessment
“Premiums can increase as clients age as the risk of making a claim may increase as we get older,” says Mitch. - Inflation
Insurance is exposed to general price rises like any industry, such as covering the salary increases for employees in the insurance company.
If you have any concerns about your insurance premiums, or it’s been a while since you last reviewed your personal insurance policies, we can help. To talk with an AdviceFirst adviser just call 0800 438 238 or email letstalk@advicefirst.co.nz
