A renewal notice arrives, the premium has jumped again, and the obvious response is to cancel something.
Before doing that, it is worth understanding why the number moved, because for most people it is not the insurer repricing. It is the policy doing exactly what it was designed to do. And there are several ways to bring the cost down that do not involve giving up protection you may not be able to buy back.
Why your premium went up
Stepped premiums rise every year, by design
Most policies are written on stepped premiums, which are recalculated each year based on your age. The increases are modest in your thirties, noticeable in your forties, and steep from your fifties onward, because the annual increase compounds on a base that is itself growing.
Nothing has gone wrong. This is the structure you bought, and it was cheaper than the alternative at the time precisely because it would cost more later.
CPI indexation is quietly increasing your cover
Most policies automatically increase the sum insured each year in line with inflation, unless you opt out. More cover costs more, so part of the increase you are seeing is you buying more insurance rather than the same insurance costing more.
Many people have no idea this is happening, and it is the easiest thing on this page to fix.
Repricing does also happen
Insurers do reprice, and income protection has seen sustained increases across the market following years of losses and regulatory intervention.
Older closed products can be worse affected, because healthier policyholders leave for newer products and the remaining pool costs more to insure, which pushes premiums up further. It is a difficult dynamic and there is no neat answer to it.
If your cover is inside super, the cost is hidden
Premiums deducted from a superannuation balance do not appear in your bank account, so increases go unnoticed for years while quietly eroding your retirement savings. If you have not looked at what your fund deducts annually, that is worth a check.
Before you change anything
One rule governs everything that follows.
Your health today determines what you can buy today. Insurance you hold was priced on your health when you applied. If you have developed any condition since, or had any investigation, replacement cover may come with exclusions or loadings, or may not be available at all.
So do not cancel, reduce or let anything lapse until you understand whether you could get it back. And never cancel an existing policy until replacement cover has been formally issued and is in force. Not applied for, not approved in principle. In force.
That single rule is the difference between restructuring and losing protection permanently.
Eight ways to reduce the cost, least damaging first
1. Turn off CPI indexation
The easiest saving available, and the most commonly overlooked. Declining the automatic annual increase holds your sum insured where it is and removes that component of the premium rise.
Your existing cover is untouched. The trade-off is that over many years the real value of the cover erodes with inflation, so this suits someone whose need is stable or declining rather than growing.
2. Check your occupation and smoker status
Premiums are rated on the occupation and smoking status recorded when you applied, and neither updates automatically.
If you have moved into a less hazardous role, changed from manual to office-based work, or gained qualifications that improve your classification, tell the insurer. If you stopped smoking and have been smoke-free for the period your insurer requires, usually twelve months, ask to be reclassified.
Both can produce meaningful reductions with no reduction in cover at all. Ask.
3. Right-size the sum insured
Cover set when the mortgage was large and the children were small may genuinely be more than you now need. If the loan is mostly repaid and the children are independent, reducing the sum insured to match the current need is not cutting protection, it is correcting it.
Do the calculation properly rather than picking a round number. Work out what would actually need funding, and reduce to that.
4. Extend the income protection waiting period
Income protection is usually the most expensive component, and the waiting period is the most cost-effective lever on it. Moving from a 30-day to a 90-day waiting period reduces the premium substantially while leaving the benefit period intact.
This works where you have sick leave, annual leave and savings to bridge the longer gap. Our article on waiting periods and benefit periods explains how to size it, including the fact that the first payment arrives roughly a month after the waiting period ends.
What to avoid is the reverse trade, shortening the benefit period to keep a short wait. That saves less and exposes you far more.
5. Move some cover inside superannuation
Premiums funded from a superannuation balance rather than household cash flow can resolve an affordability problem immediately, and for life and TPD cover this is often a sensible restructure.
The trade-offs are real. It reduces your retirement savings, terms inside super tend to be narrower, benefits must satisfy a condition of release, tax can apply to TPD benefits paid from super, and many ancillary benefits are unavailable.
Our article on insurance inside versus outside super works through the comparison properly.
6. Split the ownership
You do not have to choose one or the other. Structures exist that hold part of the cover inside super and part outside, so the bulk of the premium is funded from your balance while the outside portion preserves the broader terms and the features that matter.
This is more complex to set up and worth advice, but it frequently produces a better outcome than moving everything one way.
7. Reconsider the premium structure
Level premiums cost more initially but do not rise with age, so they eventually become cheaper than the stepped equivalent, commonly somewhere between seven and twelve years in.
Two cautions. Switching to level premiums generally requires fresh underwriting, so your current health governs whether it is available. And level premiums are not fixed. They can still be repriced across a product, and they typically convert to stepped at a set age. Level is a smoother curve, not a frozen price.
This suits someone in their forties with a long need ahead. It rarely suits someone approaching the end of their cover requirement.
8. Strip out riders and options you no longer need
Policies accumulate add-ons. Business expenses cover after leaving self-employment, child cover once children are grown, occupation-specific riders after a career change. Each carries a cost.
Review what is attached before assuming the base cover is the problem.
The options that genuinely cost you protection
Two changes are frequently presented as savings and are actually reductions in cover.
Switching TPD from own occupation to any occupation. This reduces the premium significantly, and it also makes the policy materially harder to claim on, because you must be unable to work in any occupation you are reasonably suited to rather than in your own. It can be the right call, but it is a trade rather than an efficiency.
Dropping cover entirely. If something must go, work out the order deliberately. For most working people with dependants or debt, income protection comes first because it funds everything else, then life cover, then TPD, then trauma. For someone without dependants or debt, life cover matters far less and the order changes.
Decide the priority against your circumstances rather than cancelling whatever renews next.
If the problem is temporary
Where the difficulty is short-term, ask before cancelling.
Some insurers offer premium suspension or a payment holiday for a limited period, and most have hardship arrangements that are not advertised. The critical question to ask is whether cover continues during the suspension, because in many cases it does not, and a suspension with no cover is very different from a pause on payments.
Smaller adjustments also help. Paying annually rather than monthly is usually cheaper, and the frequency loading on monthly payments surprises people. Check how the premium is being collected and whether any payment method fees apply.
What not to do
Do not simply stop paying. Policies lapse after a grace period, and reinstatement generally requires new health evidence. Stopping payment is cancelling with extra steps and worse outcomes.
Do not cancel an older policy to buy a cheaper new one on price alone. Terms in the Australian market have tightened considerably, and older policies frequently contain definitions and features no longer available. Compare the wording, not the premium.
Do not rely on employer cover as a replacement. Group salary continuance typically carries a benefit period of two years rather than to age 65, so it addresses the medium term and leaves the catastrophic risk uncovered. It also ends when you leave the employer.
Do not cancel while a claim is possible. If you are unwell, under investigation, or contemplating stopping work, do nothing to your cover until you have advice.
A sensible sequence
Ask the insurer for a full breakdown of the current premium by policy and component, so you know what you are actually paying for.
Turn off indexation and update your occupation and smoker status, since these cost nothing.
Recalculate what cover you genuinely need now rather than what you needed when the policy was written.
Consider the waiting period on income protection and whether some cover belongs inside superannuation.
Only then consider reducing sums insured or changing definitions, and only with a clear view of what you are giving up.
And keep everything in force until any replacement is confirmed.
Getting it reviewed
Most people can find a meaningful reduction without losing protection, and the earlier options on this list cost nothing at all. What makes the difference is doing it in order rather than starting with the cancellation button.
If your premiums have risen and you would like the structure reviewed properly, our insurance advice page explains how we work.
Frequently asked questions
Why do life insurance premiums increase every year?
Most policies use stepped premiums, which are recalculated annually based on your age, so increases compound and accelerate sharply from your fifties. Separately, most policies automatically index the sum insured to inflation each year unless you opt out, so part of the increase is additional cover rather than a price rise. Insurers also reprice products, particularly income protection.
How can I reduce my premium without losing cover?
Start with the changes that cost nothing: turn off CPI indexation, and update your occupation classification and smoker status if either has changed. Then consider extending the income protection waiting period, moving some cover inside superannuation so premiums come from your balance, or right-sizing the sum insured to what you now genuinely need.
Should I switch from stepped to level premiums?
Possibly, if you have a long need ahead. Level premiums cost more initially but do not rise with age, and typically become cheaper than stepped somewhere between seven and twelve years in. Switching generally requires fresh underwriting, so your current health determines availability, and level premiums can still be repriced and usually convert to stepped at a set age.
Is it safe to cancel my insurance and buy a cheaper policy?
Only after replacement cover has been formally issued and is in force. Your health today determines what you can buy today, so any condition or investigation since your original application may result in exclusions, loadings or a declined application. Compare policy terms rather than premiums, because older policies often contain features no longer available.
Should I move my insurance into superannuation to save money?
It can solve an affordability problem immediately, since premiums come from your balance rather than your cash flow. The trade-offs are that it reduces retirement savings, terms inside super tend to be narrower, benefits must meet a condition of release, tax can apply to TPD benefits, and ancillary features are often unavailable. Splitting cover between inside and outside super is frequently a better answer than moving all of it.
What happens if I just stop paying my premiums?
The policy lapses after a grace period, and reinstating it generally requires new health evidence, which means your current health governs whether you get the cover back. Stopping payment is effectively cancelling, with a worse outcome than doing it deliberately. Ask the insurer about suspension or hardship arrangements first.
Which cover should I drop first if I cannot afford all of it?
For most working people with dependants or debt, income protection is the last to go because it funds everything else, followed by life cover, then TPD, then trauma. For someone without dependants or debt the priority shifts, since life cover matters far less. Decide the order against your circumstances rather than cancelling whichever policy renews next.
General advice warning. This article contains general information only and does not take into account your objectives, financial situation or needs. Reducing, restructuring or replacing insurance carries risks that depend entirely on your health and circumstances, and cover that is cancelled may not be able to be replaced. Existing cover should never be cancelled before replacement cover is confirmed in force. Policy terms and features vary between insurers and product generations, so please read the relevant product disclosure statement and seek personal advice before acting.
