Insurance is a must for most Australians—whether it’s for your home, car, health, or life. But there’s one word that’s on every policyholder’s mind right now: premium. With costs surging across the country in 2025, understanding what an insurance premium is (and how to keep it manageable) has never been more important. Here’s your expert guide to the ins and outs of premiums, the forces driving them higher, and the best ways to keep your coverage affordable.

What Is an Insurance Premium?

Simply put, your premium is the price you pay to your insurer for coverage—usually monthly or annually. It’s the dollar amount that keeps your policy active and, in turn, promises financial protection if disaster strikes. But what goes into that number? It’s more than just a random figure. Insurers use a mix of:

Risk assessment: How likely are you to make a claim based on your age, location, or health?
Type and level of cover: Comprehensive cover costs more than basic; extras like flood protection or agreed value for your car add to the bill.
Claims history: Frequent claims can push your premium up.
Policy excess: Opting for a higher excess (the amount you pay if you claim) can lower your premium, and vice versa.

For example, a 30-year-old living in an inner-Sydney apartment might pay a lower home insurance premium than someone in a bushfire-prone rural area, simply because the risk profiles are different.

Why Are Premiums Climbing in 2025?

Many Australians have opened their renewal notices this year to see a sharp increase. According to data from the Insurance Council of Australia, average home and contents premiums rose by over 15% in the past 12 months, with some regional and disaster-affected areas seeing jumps closer to 30%.

Key drivers include:

Extreme weather events: Floods, bushfires, and storms have led to record claim payouts in recent years, and insurers are passing these costs on.
Reinsurance costs: Global reinsurers (the insurers’ insurers) have hiked their rates, impacting local premiums.
Inflation and construction costs: Higher building and repair costs mean higher sums insured, pushing up premiums.
Regulatory changes: New APRA rules on capital adequacy are forcing insurers to hold more reserves, which can filter down to customers.

Health insurance premiums are also rising in 2025, with the average annual increase approved by the federal government sitting at 3.5%, but some funds are raising prices by as much as 5.2%.

How to Cut Your Premium Without Losing Crucial Cover

The good news: you’re not powerless when it comes to your premium. Here are proven strategies Aussies are using to take control in 2025:

Shop around at renewal: Don’t auto-renew—compare quotes, as insurers often reserve the best deals for new customers.
Bundle policies: Many insurers offer discounts if you combine home, car, and contents cover.
Review your cover level: Make sure you’re not over-insured. For example, if your car’s value has dropped, it may be time to switch from agreed value to market value cover.
Increase your excess: If you can afford a higher excess, this can shave hundreds off your annual premium.
Install safety features: Security upgrades (alarms, deadlocks, smoke detectors) can win you discounts on home and contents insurance.
Claim only when necessary: Minor claims can lead to big premium hikes at renewal. Consider self-funding small repairs if you can.

For health insurance, check if you’re eligible for the private health insurance rebate or can avoid the Medicare Levy Surcharge by maintaining the right level of cover. Some funds offer discounts for direct debit payments or for holding a policy for several years without claiming.

Premiums and the Future: What to Expect

Insurers and regulators are signalling that higher premiums are the new normal as climate risks, inflation, and global events shape the market. However, the government is considering targeted disaster insurance subsidies for high-risk regions—a policy move that could help ease the burden for some homeowners from late 2025 onwards.

Digital innovation is also making it easier to compare, switch, and tailor cover, giving consumers more control than ever before.