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Lock in Premiums: Everything you need to know
Every year, health insurance premiums go up, and Australians feel the financial pinch. ‘Locking in your premium’ is a tactic you could use to retain previous year’s price for the year ahead, saving yourself the cost of any potential price increase.
Each year, the Australian Government announces an annual increase in health insurance premiums on or around April 1. However, many private health insurance providers allow customers to pay 12 months up front at the previous year’s rate, if paid before the price rise.
This is referred to as ‘locking in your premium.’ If you can afford it, you should consider locking in your premiums and paying a full 12 months up front.
How do I lock in my premium?
While locking in your premium is a great way to save, not all insurers will allow you to do so. Contact your insurer to find out if locking in your premium is an option on your specific policy.
- The health insurance rate rise typically occurs on April 1 each year.
- You pay a year’s (12 months) premium in advance in March (at the current rate).
- To ‘lock in’ your annual premium at the current rate:
- Your policy must start before April 1 and…
- Your annual payment must be processed by the bank before April 1, or even a few days earlier for some insurers. Also, banks can take up to six days to process your payment. It’s important not to leave it too late before locking in premiums.
- Now your premium is protected (at the current rate) until March the following year.
When is the best time to lock in my premium?
It’s best to lock in your premiums and pay up front well before the beginning of April. Some insurers have a cut-off date before the April 1 announcement, and some banks might take up to six days to process your payment.
This means the best time to lock in your premiums and pay for 12 months up front is early to mid-March. It’s a good idea to check with your insurer at the start of March to receive a firm date that you should make the payment by. This avoids missing your chance to lock in premiums at the previous year’s rate. Keep in mind you can lock them in any time before the start of April.
What are the benefits of locking in my premium?
You could save a lot of money when you lock in health insurance premiums. By paying in advance, you essentially delay having to pay the increased premiums for up to 12 months if your insurance goes up. Think of locking in premiums as an automatic 4-6% annual discount, as that’s the average amount health insurance premiums go up in Australia each year.
Here’s an example. Let’s say Kate paid $1,200 per annum for private health insurance in 2010. If her premiums went up by the industry weighted average each year since then, she would be paying $1,823 per annum in 2018 – more than a 30% increase in eight years.
However, if she had regularly locked in her rates every year, Kate would be paying around $1,754, an important saving of around $70 in that year. She’d have a total saving of more than $623 over those eight years. This hypothetical example does not take into account other reasons premiums may increase.
|Year||Avg increase (%)||Cost||Avg Increase (locked-in)||Cost (locked-in)|
|Saving of $623.28 over 8 years|
There may be an added benefit to locking in your premium as well. When you pay up front, you’re done and dusted with your health insurance payments for the year. That’s one less bill you have to worry about paying month by month in the year ahead. Doing so could save you both time and stress.
Are there any other considerations?
Before choosing to lock in your premiums, you may want to consider whether or not you can afford to do so. A year of health insurance costs more up front. You may or may not be in a financial position to pay for the year ahead of time.
You should also note that ‘locking in your premium’ doesn’t mean that funds can’t make changes in specific policy details and coverage; including changes to rebates or annual limits, or in the services covered by the policy/health fund. You must also ensure your payment has been processed by your chosen fund by April 1.
Learn more about locking in your premium with iSelect.
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