Premium is one of those finance words that pops up everywhere: insurance, investing, superannuation, and even in your home loan paperwork. But what does it actually mean? And why should every Australian know the difference between paying, earning, or quoting a premium?
In finance, a premium generally refers to an amount paid above a standard or base level. The specifics, though, depend on the context. You might pay a premium to secure an insurance policy, or buy shares at a premium above their face value. Sometimes, a premium is something you receive—like when you sell a call option in the stock market.
In 2025, as inflation and regulatory changes shape the market, understanding the role of premiums is more important than ever—especially as costs shift for insurance, investments, and even superannuation contributions.
For most Australians, ‘premium’ first means the regular payment you make for insurance. Whether it’s health, home, car, or life insurance, your premium is the price of peace of mind. Insurers set premiums based on risk factors like age, location, and claims history. In 2025, new data-driven pricing models are making premiums more personalised—and sometimes more expensive—especially for flood-prone areas or drivers under 25.
Tip: Review your policy annually and compare providers—many Australians can save hundreds by switching, especially with the latest 2025 policy reforms encouraging transparency and easier switching.
In investing, ‘premium’ can mean either paying more than something’s base value or earning extra by taking on risk. Here are the most common uses:
With the rise of micro-investing apps and direct indexing in Australia, more retail investors are encountering premiums in everyday trading. Understanding how premiums affect returns—and risk—can help you make smarter portfolio choices.
Premiums also play a role in superannuation, mainly as insurance premiums deducted from your super balance. Most super funds offer default life and TPD (total and permanent disability) cover, with premiums automatically taken out of your contributions.
Premiums can also refer to loan or mortgage insurance (LMI), paid as a one-off or added to your loan if your deposit is below 20%—another key cost for homebuyers in 2025’s competitive property market.
The concept of a premium runs through every major financial decision Australians make. With ongoing regulatory reforms, climate risk re-pricing, and new technology-driven products, knowing how premiums are calculated—and how to manage them—can help you protect your wallet and build wealth.
Whether you’re reviewing your insurance, weighing up a new investment, or planning your super, always dig deeper into the premium: is it fair value, and is there a smarter way to structure your finances?