Life Insurance Blog

Cheap Life Insurance: Factors Which Affect Life Insurance Premiums


“Price is what you pay. Value is what you get.” – Warren Buffet

How Life Insurance Works

Like any other company, life insurance companies need to make a profit. As well as keeping their shareholders happy, doing so provides comfort to their customers, who are relying on the life insurance company to provide financial security in the event of a life insurance claim.

Insurance policies are a contract in which the the policy agrees to pay the life insurance premiums (the cost) and the life insurance company agrees to pay the policy owner (the benefit) when certain events such as death (life insurance), disability (TPD insurance) or illness (Trauma Insurance) occur.

The science (actuarial) used to determine life insurance premiums is quite complex and really only worth reading if you have trouble sleeping.

The following summary, however, should be enough to help you understand what factors affect life insurance premiums, which in turn will help you find the best quality, cheap life insurance that is suited to your needs.

Group Risk – Sharing the risk

Insurance companies function by spreading risk over a large group of people. For example:

A life insurance company issues 10,000 life insurance policies each with a death benefit of $100,000. Statistics show that 1 in every 1000 policy holders will die every year. To cover the $1,000,000 estimated payment each year, the life insurance company needs to charge at least $100 for each policy.

It should also be noted that Life Insurance Companies are required by law to maintain sufficient funds to ensure they are capable of paying life insurance claims.

Individual Risk – Some are more equal than others

In the Group Risk example above, every policy owner paid the same premium as everyone else. In practice, the likelihood of an insurance claim differs from one person to the next. Age, medical history, gender, lifestyle choices and occupation are just a few of the variables that impact a person’s perceived risk. When calculating premiums, life insurance companies review these variables in a process known as underwriting. By conducting underwriting at an individual level, life insurance companies can charge those at greater risk higher life insurance premiums than those for whome their is less risk.

Administration Costs – Is your life insurance company efficient?

Every businesses incurs costs when producing and distributing their products, which in turn increase the cost for the customer. All else being equal, a company with higher operating costs will need to charge higher prices than a competitor who operates more efficiently.

So in our opinion, Warren Buffet’s quote should have been:

“Price is what you pay. Value is what you get. And research uncovers bargains” – Warren Buffet & Stephen Handley

So to help you in your quest to find the bargain, here are the three factors to remember when looking for cheap life insurance premiums

(The Value) Quality of the Product

If a life insurance product provides greater benefit(s) the life insurance company likely pays more in life insurance claims.

Amount of underwriting

Life Insurance companies who conduct more detailed underwriting generally charge lower premiums for their products. Therefore, if an insurer asks very few questions about your lifestyle or medical history, you can generally expect to pay more for their product.

Operational overheads

If the insurer operates inefficiently (i.e. they spend more than their competitors to generate the same revenue) they must pass on these inefficiencies in the form of higher costs

How to find good quality cheap life insurance

Historically, life insurance policies sold directly to consumers were more expensive, because:

  1. If was difficult to conduct detailed underwriting
  2. Attracting customers required expensive advertising campaigns

To offset the higher costs, many direct life insurance products provided less benefits than those available through financial planners.

However, the Internet helped to level the playing field. We are now able to offer quality life insurance products at affordable prices directly. We have been able to achieve this because:

  • Our underwriting technology can differentiate between low risk and high risk candidates
  • Our administrative overheads are much lower than other direct life insurance companies, because we don’t rely on large call centres and high advertising budgets to attract our customers

Get an instant quote now and see that it’s possible to get quality, cheap life insurance


Stephen Handley
Stephen Handley
My name is Stephen Handley. I have over 20 years experience in IT, Project Management and Financial Services. By combining this experience, I hope to make it easier for Australians to find good quality and affordable life insurance. Furthermore, I am not connected to any life insurance company. So, in the unfortunate event of a claim, you'll have someone in your corner, representing your interests.