The new life insurance legislation, which was introduced in draft form nearly two years ago, will significantly increase the tax paid by life insurers from July 1.

Asteron general manager of marketing and operations Antony Vriens says Asteron came to the conclusion that the fairest and most logical way to manage the tax increases was to apply the necessary increase to both existing and new stepped premium policies in the SmartLife range.

"Distributing the cost this way means the impact is minimised for both new and existing customers which is important to ensure the issue of underinsurance is not intensified.

"We think it is likely that suppliers who are not making small changes to existing premiums now may need to impose significant increases to existing customers in five years time, which may result in unintended cancellations."

Asteron's SmartLife stepped premium suite will increase by 7.5% from July 1. This works out to be an addition of around $1.88 per month for a 41 year old non-smoking male with $200,000 stepped term life cover.

Existing stepped premium SmartLife policies taken out before July will have the changes applied at the customer's next renewal date.

SmartLife level premium taken out from July 1 will see a 22% increase as it has an underlying permanent premium rate guarantee. Asteron says this means any increase in cost needs to be auctioned immediately to ensure the level premium product does not need to be cross-subsidised by other products in the future.

Vriens says premiums will always be subject to changes due to external factors, such as the government increase in GST, however it does not intend to make any additional life tax related changes in the next 12 months.

Asteron has also initiated an active Business Process Reengineering team to limit the cost impact on customers via ongoing efficiency improvements.