Why Is Your Insurance More Expensive Than Your Friend's?
You are both 38.
You both have a mortgage, kids and life insurance.
Your friend casually mentions what they pay each month and suddenly you’re thinking:
Why am I paying so much more?
It is a fair question.
The answer is that insurers are not pricing you based simply on your age. They are assessing you as an individual, and even two people who appear very similar can look quite different from an insurance perspective.
Your Friend Isn't Actually the Same Risk as You
When you apply for certain types of personal insurance, the insurer goes through a process called underwriting.
That assessment may consider factors such as:
- Age
- Health
- Medical history
- Family medical history
- Smoking or nicotine use
- Occupation
- Income
- Hobbies and activities
- Amount and type of cover
Small differences can change the outcome.
Consider two friends who are both 40.
One works in an office, has never smoked and spends their weekends coaching junior football.
The other is a builder working at heights, vapes and races motocross several weekends a year.
They might live on the same street and earn similar incomes, but an insurer may assess them very differently.
Your Medical History Can Make a Difference
Previous health conditions, injuries, symptoms and treatment can all be relevant when an insurer assesses an application.
Depending on the circumstances, an insurer could offer ordinary terms, apply an additional premium, exclude a particular condition, seek further medical information or take another underwriting approach.
This is also why two insurers may not necessarily offer the same terms to the same person.
Your Job Title Doesn't Tell the Whole Story
Occupation can be particularly relevant for cover such as income protection or disability insurance.
“Engineer” could describe someone who spends all day behind a desk.
It could also describe someone regularly working on industrial sites around heavy machinery.
Likewise, one farmer may spend most of their time managing staff and administration, while another is physically working with machinery and livestock every day.
The actual duties matter.
Smoking and Vaping Can Affect the Assessment
Insurers commonly ask about smoking, vaping and nicotine use during an application.
Definitions and qualification periods for smoker and non-smoker rates can vary between insurers, so the details matter.
This is also an area where accuracy is important. Insurance applications should be completed fully and truthfully so the insurer can assess the cover on the correct basis.
You May Not Actually Have the Same Policy
This is the part that often gets missed.
Your friend might say:
“I’ve got $500,000 of life insurance too.”
That does not necessarily mean the two policies are equivalent.
Your cover may include different features, additional benefits or premium structures.
For example, some New Zealand life insurance products include benefits for funeral costs, repatriation, terminal illness or particular life events.
Before comparing what you pay with someone else, compare what you actually have.
Stepped and Level Premiums Can Change the Comparison
Premium structure can also affect what you pay.
With stepped premiums, the cost generally changes as you age and can increase over time.
Level premium structures generally calculate the base premium using your age when that level term begins, although other factors can still cause the total premium to change.
One friend could therefore be paying more now because they selected a different premium structure designed around a longer-term strategy.
Neither option is automatically better.
It depends on the person, the policy and how long the cover is expected to remain in place.
Could Another Insurer Offer Different Terms?
Possibly.
Insurers have their own underwriting guidelines and products, so one may assess a particular medical condition, occupation or lifestyle factor differently from another.
That does not mean you should cancel your current insurance and move every time you find a cheaper quote.
Moving policies can involve new underwriting, and a health condition that developed after your original insurance was arranged may affect the terms available now.
Never cancel existing cover before replacement insurance has been fully considered and confirmed.
If your premiums have risen and you want to know whether you’re still receiving good value, Halo can compare your existing benefits and terms rather than simply comparing the monthly price.
Compare Value, Not Your Friend's Bank Account
Your friend’s premium can be an interesting conversation.
It just isn’t a reliable benchmark for your own insurance.
The better questions are:
Does the cover still suit your life?
Do you understand what you’re paying for?
Are there benefits you no longer need?
Are there gaps?
And does the premium still represent reasonable value for the protection being provided?
Halo Advisers can review your current policy and compare appropriate options across providers.