It seems like prices continue to go up in every area of our lives, and insurance premiums are no exception.
Whether it’s health insurance or life insurance, there’s been an increase in premium costs and unfortunately that trend will continue – insurers currently have plans in place to raise premiums for the coming year.
So why are your insurance premiums rising? Is there anything you can do about it?
Let’s explore the reasons why your insurance premiums are rising, including a look at health and life insurance separately.
Health Insurance Premiums
Private health insurance is purchased to provide support with hospital fees and other expenses not covered by Medicare. This is a great help to cover costs if you get sick, or if you need ongoing treatment for a medical condition.
Coverage can include ambulance costs, hospital costs and coverage for extra general treatments.
Consumers pay a premium and that premium goes to fund the costs when there’s an issue. Some consumers have to pay an added surcharge for health insurance depending on age and income.
So why do health insurance premiums increase?
Usually it happens when health related costs rise, such as wages for medical staff, medical equipment costs, and other increased expenses. Premiums can also increase when members of the plan need health services and are accessing them more frequently. Inflation is another factor, and there has to be adjustments for risk, as the population continues to age and therefore become more likely to make a claim.
When insurers expect an increase in costs, or they have experienced an increase, they up the cost of premiums to increase their contribution “income.” Increasing premiums helps the plans stay financially viable.
In the coming months, you can expect premiums to rise by an estimated 3 per cent, or twice the rate of inflation. That’s because the cost of medical devices like hip replacements has jumped over 8 per cent. In some instances, the devices are priced much higher in Australia than in other areas. And insurance plans are facing pressure because an increasing number of young people are dropping out due to high premiums.
Private health insurers submit premium hikes to the Health Department. If approved, the changes would be announced in late December with new premiums being applied beginning April 1.
In other words, insurers will be passing on rising costs to consumers.
So what can you do?
To help with rising costs, you may be eligible for a rebate. The Australian Government provides a rebate depending on your income level. The rebate can be taken through a reduced premium, or through your tax return.
Life Insurance Premiums
Life insurance costs also continue to rise, making it more expensive to purchase coverage every year. There are several factors causing that.
For one, many policies in Australia have stepped premiums, meaning that your premium will increase each year due to the fact that the older you get, the greater the risk to the company. Inflation also affects life insurance premiums. After all, the insurance companies need to turn a profit, which impacts how much you pay.
Another reason is an increase in the number of claims, in particular income protection claims for mental health issues among middle-aged clients.
As well, government reforms have had an impact. Those under the age of 25 or earning under a specific salary range need to opt in to super funds insurance, instead of a default system where they automatically pay unless they actively opt out. That could mean the loss of young members in plans, with an estimated increase in premiums of up to 26 per cent.
So what can you do?
One step is to figure out whether you have the right coverage: How much would your family need if there was a claim, and how much would you receive in terms of paid leave or other support.
With any kind of insurance, it’s also good to do a review on a regular basis, looking at your insurance coverage and whether your needs have changed.
Working with a financial adviser, you can determine exactly what you need for health insurance and life insurance, and be sure that you’ve got the coverage you need. Insurance is part of an overall financial strategy that the advisers at Financial Framework are experienced at building.
Final Thoughts
There’s no doubt that costs continue to increase, whether that’s at the grocery store, the gas pump, or with insurance premiums.
It’s important to know where you stand with your insurance coverage, the cost of your insurance premiums, and your overall financial goals. Contact Financial Framework for more information.
