What is a premium in insurance?

A premium in insurance is the amount the policyholder pays to the insurer for cover, usually expressed as a yearly figure but often payable monthly, quarterly, or half-yearly. The premium is the price of the insurance and is determined by the insurer's assessment of the risk being covered, the sum insured, the chosen excess, and the policy features.

Premiums are calculated using a wide range of factors. Home insurance premiums depend on location (postcode), construction materials, age of the building, security features, claim history, and the chosen sum insured and excess. Car insurance premiums depend on the make and model of the vehicle, the driver's age, gender, and history (no-claims rating), the postcode where the vehicle is garaged, the chosen excess, and any optional add-ons. Health insurance premiums depend on the level of cover, the rebate tier (linked to age and income), and any Lifetime Health Cover loading.

Several taxes and charges sit on top of the raw premium. The Goods and Services Tax of 10 per cent applies to most general insurance premiums (but not to health and life insurance, which are GST-free or input-taxed). Stamp duty is charged by each state on most insurance premiums, with rates ranging from 9 to 11 per cent in most states, although ACT abolished stamp duty on insurance in 2016 and other states have considered similar reforms. The Emergency Services Levy on home and contents insurance funds fire and emergency services in NSW, with other states having moved this levy onto council rates instead.

Most insurers offer pay-by-the-month options without the substantial monthly loadings of older direct debit arrangements, although annual payment is typically still cheapest. Premiums generally renew automatically each year unless the policyholder cancels, and insurers must give written notice (usually at least 14 days before renewal) of any change in cover, excess, or premium. Comparison sites including iSelect, Compare the Market, and Canstar offer side-by-side premium comparisons across major insurers, although they cover only subscribed insurers rather than the whole market. The Australian Securities and Investments Commission has expressed concern about premium increases in recent years and now requires insurers to disclose previous-year premiums on renewal notices for home, motor, and strata insurance.