If your premium for your life insurance policy increases each year according to your age, you are paying what is known as an age rated premium, which is the amount your life cover costs for your age. Another option is to pay a fixed increasing premium. We look at how the two options work.
How do age rated premiums work?
Your premium increase is worked out each year based on your age. Each year your premium increases by a factor based on your age because insurance becomes more expensive as you get older.
The benefits of age rated premiums
Life insurance with age rated premiums is cheaper when you first take it out. So, although your premiums increase each year, if you have an age rated premium life insurance is more affordable in the first years of the policy, which is important if you have a limited budget but need cover.
What about fixed increasing premiums?
This is when your premium is initially guaranteed and then increases by a set amount each year. For example some 1Life life policies with this premium pattern have a premium guaranteed for the first two years (which means your premium won’t increase in the first 24 months), after which the premium increases by a small amount such as 5% each year. Some policies have a 5-year guarantee period. In this time, premiums are guaranteed not to increase by more than a certain amount, for example 5%.
The benefits of fixed increasing premiums
Your premiums won’t increase by large amounts, as can happen with policies that have age rated premiums. In the long run, fixed increasing premiums are more affordable.
What kind of premium increase do I have?
You can see this on your policy schedule or contact our call centre to find out.
Which is better for you?
It depends on your budget, stage of life and your preferences.
When you first take out life insurance a policy with an age rated premium should be more affordable than a policy with a fixed increasing premium. However, premium increases on a policy with an age rated premium might be more than policies with fixed escalating premiums.
If you have a limited budget and need life insurance a policy with an age rated premium will be more affordable. Just remember you will need to budget for increases in the years ahead. Keep in mind that if you are young, your salary should increase over time as you gain more work experience and responsibility, which means these increases should be within your budget.
If you prefer to budget for lower annual increases in the years ahead, a policy with a fixed escalating premium may be a better option.
Can I change?
Because this would change the entire policy, you would have to take out a new policy, which would have to be assessed by our underwriters. So there may be changes to the sum assured and premium compared to the existing policy. Find out all your options before making any decision.
Talk it through
Life insurance is really important for your family because it gives you the ability to ease their financial burden if you are no longer around, as long as you continue paying your premium. If you don’t understand something about your policy or how it works, including your premium, always ask 1Life to explain so that you understand and can plan for increases or any changes in the future.
Frequently asked questions
Age-rated premiums in life insurance refer to the amount that increases each year based on your age. As you get older, the premium rises because insurance becomes more expensive.
Age-rated premiums are cheaper initially, making life insurance more affordable in the early years of the policy, which is advantageous for those with a limited budget.
Fixed increasing premiums guarantee a stable premium initially and then increase by a set amount each year. For example, a policy might have a premium guaranteed for the first two years, followed by an annual increase of 5%.
Fixed increasing premiums offer the advantage of more predictable and gradual increases over time, compared to the potentially larger increases with age-rated premiums.
You can find this information on your policy schedule or contact the call centre of the insurance company.
The choice depends on your budget, life stage, and preferences. If you have a limited budget, an age-rated premium might be more affordable initially, but fixed increasing premiums may be more cost-effective in the long run.
Changing premium options would require taking out a new policy, which will be assessed by the underwriters. It's essential to consider all your options and potential changes in the sum assured and premium before making a decision.