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How is life insurance calculated?

28 November 2022
3 minute read

Do you have questions about how much life insurance you need and how life insurance premiums are calculated? While there's no one-size-fits-all solution, we've created this guide to help you understand how to work out your cover amount, or sum assured, and your monthly premium.

Adding up your financial obligations if you pass away (such as income replacement, paying off debt and education) and subtracting assets that your family can use (such as savings or existing life insurance) will give you a good idea of the amount of life insurance you need. Once you know what your sum assured amount is, you can  determine your life insurance premiums. If you’re not sure, speak to a financial advisor who can help you determine your needs through an FNA, or use an insurance calculator or quote to get an idea.

Save up to 13% on your life insurance premiums if you buy online.

What factors are used to calculate life insurance premiums?

There are several factors that could affect how your life cover premiums are calculated, including your age and health. Let’s discuss these in more detail:

  • Age: Applying for life insurance at a younger age could help you save money. Young people tend to pay lower premiums because their health is generally good.. If you wait to buy life, dread or disability cover later in life, you never know when you’ve waited too long, and may develop a health condition that adversely impacts your rates or even prevents you from getting insurance. Bottom line: Don't wait.
  • Medical history: Your life insurance company may ask you about your medical history when you apply. Past illnesses, prescription drug use, and nicotine use will be considered in these assessments. Chronic illnesses, such as high blood pressure, high cholesterol, and respiratory problems, will also be considered and will affect policy costs. How does your family affect your life insurance costs? Insurance companies value family health history because it can predict your future health. Your body mass index (BMI) is also very important when considering your risk profile.
  • Gender: Statistics show that males don't live as long as females and pay more for life insurance than their female counterparts. Since women live longer, they pay less than men. That's good news for women seeking affordable policies.
  • Smoking or vaping habits: A smoker is generally considered anyone who uses any substance or product containing nicotine. Smoking affects a person's health and lifespan, which could result in a higher insurance premium. A smoker could pay more than twice the premium. If you smoke when you purchase your insurance plan, but stop smoking afterwards, you may qualify for non-smoker rates. Most insurance providers define a non-smoker as someone who has not used any nicotine-containing substance in the last 12 months.
  • Health: The life insurance application process may include a medical assessment. Insurers also factor in your physical size and shape to assess your overall health and likelihood of developing life-threatening conditions. Your application may include a medical exam and a review of your medical records. Conditions such as diabetes could raise your premiums or incur exclusions, while managing existing conditions can help you lower your premiums.
  • Work and lifestyle: Insurers consider how your work impacts your health and may or may not provide you with life insurance. Certain occupations require daily risk taking. Mine workers, for example, may be at greater risk for respiratory issues.In other industries with a lot of occupational hazards, costs could also increase and/or you might not qualify for life cover at all.
  • Hobbies and adventure: Your hobbies outside of work also matter. Are you an adventurer? What about skydiving, racing cars, or rock climbing? Make your life insurance company aware of these activities. Life insurance costs and eligibility may be affected. Motorsports and skydiving are examples of high-risk hobbies that increase premiums in order to offset the extra risk.

What's the best way to change my life insurance?

If your life insurance needs have changed, you can purchase more cover. For example if you have tied the knot, had a child or an additional child, purchased a house or changed jobs and are earning more, you might need more life insurance. 

With 1Life’s Guaranteed Assurability Benefit you can increase your cover amount with no medical underwriting every third anniversary of your policy or when you go through a significant life change, for example marriage or parenthood.

How to get the best life insurance cost estimate

You've decided life insurance makes sense, but now you're wondering how much coverage you really need and what it will cost. Choosing the right policy for your budget and your current and future needs isn't as difficult as it seems, 1Life Insurance is committed to providing you cover that suits your needs. Talk to us about the cover you need for your life stage today.

The views and opinions expressed in this article are those of the authors and do not necessarily represent or reflect the views of 1Life Insurance or its employees.

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