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Taking out a life insurance policy is a good way to empower your loved ones and give them financial security when you are no longer around to provide for them. Your life cover premium is individually determined based on a number of factors such as your age and occupation. We find out more to help you understand your policy and what affects your life insurance premium.
Factors affecting life insurance premiums
Insurance companies assess each life cover application individually using several factors to determine the appropriate insurance premium for the sum assured and benefits requested. The factors affecting your life cover premium include:
Age and gender
Life insurance pays out a sum assured for a valid claim on the death of the insured. Insurance companies need to put a likely date on when that death will occur, and use life expectancy models to estimate this date. For the sum assured, they then work out how much it would cost over the remaining life expectancy in total, and apportion this amount monthly to get to your monthly life insurance premium.
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The younger you are, the longer your life expectancy, so the more time you have to pay premiums. This means that your premiums will be lower when you are younger. Take out insurance when you are over 50, and your premium will be much higher than a 25-year old’s premium!
Your gender also affects your life expectancy. In South Africa, females live on average 5 years longer than males. Although this means women need to save more for their older years, it also means insurance premiums are usually a little lower for women than those for men of a similar age!
Health status
Your life expectancy is affected by your health status. The healthier you are, the longer you are expected to live. If you have health conditions your life expectancy may be shorter than the average.
Your health status includes your BMI (body mass index) which is calculated by dividing your weight in kilogrammes by your height in metres squared. A healthy range for BMI is between 18.5 and 25.
Chronic conditions such as high blood pressure, diabetes and asthma, and serious illnesses such as cancer and heart disease reduce life expectancy. Insurance companies will ask for full details on any chronic conditions and illnesses, past and present, to determine how they could affect your life expectancy and hence your premium. The more serious the condition or illness, the lower your life expectancy, so the higher the premium.
Having a chronic condition does not mean you won’t qualify for cover or that your premiums will be too high, especially if it is well managed and does not affect your daily life. However, some chronic conditions and serious illnesses such as stage 4 cancer will either lead to very high insurance premiums or will be excluded from the policy.
Top tip: You must fully disclose all information about your health when applying for life insurance. Not disclosing information will result in reduced or declined claims.
Smoking and lifestyle habits
Smoking is a leading cause of cancers and early deaths in South Africa. According to the Cancer Association of South Africa, smokers are more likely than non-smokers to develop heart disease, lung cancer and strokes. In other words, it is really bad for your health and reduces your life expectancy! Insurance companies will charge higher premiums for smokers because of this.
Smoking includes vaping, and this must be disclosed when you answer questions about your health on your life insurance application.
Smoking is a habit that is detrimental to your health and increases your insurance premium, but healthy habits such as exercising regularly can improve your health and lead to higher life expectancy and lower life cover premiums! Your insurance company may also look at these habits when determining a premium amount for your policy.
Occupation and hobbies
Some occupations are high risk and people in those occupations might have a shorter life expectancy. Think of a soldier, security guard, chemical factory worker, even an electrician working in a power station. Your occupation is another factor that can affect your life cover premium.
Administrative and desk jobs are seen as low risk, jobs that require you to travel extensively for work, heavy manual labour, or working with hazardous materials such as chemical waste, or in a hazardous environment such as a power station, are seen as high risk! Taking proper precautions such as wearing protective clothing, and following safety protocols can reduce this risk, but your high-risk occupation may mean your insurance premium is higher.
And, if your weekend activities include hazardous pursuits such as rock climbing and hobbies such as sky diving, scuba diving or bungee jumping, these may be excluded from your policy.
Education
Higher life expectancies are associated with higher levels of education, so education is also a factor that affects your insurance premium. Your insurance company will ask if you have a matric, graduate degree and any other qualifications when you apply for cover.
Financial status
In addition to your health and occupation, insurance companies may also ask for details on your financial status, in particular if you have requested a high sum assured. This is to ensure the sum assured is appropriate for your needs. If, for example, you request a sum assured of R20 million, but have annual living expenses of only R400 000, your R20 million would be far more than enough cover for your loved ones after your passing! This would be considered too much cover, and a more realistic amount would be proposed.
Choosing the right insurance policy
You need to select the right policy for your needs and a sum assured that is sufficient to meet your financial obligations if you pass away earlier than expected. And, your life cover premium must be affordable!
Your policy can change the lives of your loved ones by giving them funds for living expenses when you are no longer around, funds for education for your children, and to ensure any debts such as a home loan are paid off. Your life cover also ensures your family has financial stability and can grow their generational wealth. You can use a life insurance calculator to help you decide how much cover you need and how much is affordable, or speak to a financial adviser who will conduct a needs analysis to determine an appropriate sum assured.
1Life Insurance offers life cover policies for sums assured of up to R10 million. You can tailor your policy to meet your needs and budget, and there are options to increase your life cover should your needs change. Talk to a skilled 1Life Insurance consultant today or buy your cover online and save up to 13% on your monthly premiums.
Many factors affect life insurance premiums
Many factors, taken together, will determine your life insurance premium, but all insurance companies aim to keep premiums as affordable and competitive as possible to allow as many people to have life cover. Your age, gender, health, education and occupation are the most important factors they will take into account when determining a premium for your policy!