Even if your friend is close to you in age and physical circumstances, your insurance premiums might be very different. AdviceFirst adviser, George Allbury explains how premiums are calculated and what factors can cause your insurance premiums to be more expensive than your friends.

Premiums are how an insurance company finances your coverage, from the maintenance of the policy, all the way through to paying for any claims you make in the future. That means setting premiums can be a complicated business, and there are a lot of issues involved including; the type of cover, the risks involved, and the insurer’s own costs.

Physical statistics are an important initial consideration; gender, age, occupation and smoking status all affect what you end up paying. This, plus the protection purchased—life, trauma, disability, etc.—sets an underlying premium price. Insurer profits and costs are built on top of this foundation.

“Beyond these factors, an insurer considers your individual risk profile, which is an assessment of how likely you are to make a claim on your policy. Higher risk means higher premiums. For example, if you and your friend both work similar jobs, but you spend your weekends mountain climbing, statistically you may be more likely to make a claim,” says George. “Medical history, hobbies, family history of diseases, hazardous employment or involvement in different sports can all raise your risk profile.”

“If your premiums are higher than your friend’s, it’s likely you have a risk profile that increases your chances of making claims, even if you are the same age. Those higher premiums are an insurer’s way of making sure they cover the future costs of your insurance policy.”

If you are concerned that your insurance premiums are too high, George recommends contacting your adviser for a review of your policies.

“You should review your policies annually, that way you can capture any changes to your situation. Things like stopping smoking, a change in job or income and a change in living situation can all impact your premiums,” says George. “Your adviser will be able to help you choose cover that meets your needs and check you aren’t paying for any benefits that aren’t right for your situation”.

If you would like to review your insurance policies, contact an AdviceFirst adviser on 0800 438 238 or letstalk@advicefirst.co.nz.

AdviceFirst is a Financial Advice Provider (FSP23242).