What determines your life, disability, and illness insurance premiums?

While most people know that life, disability, and critical illness cover offer them and their loved ones valuable financial protection, very few understand exactly how it works. As a result, many people avoid signing up because they assume it's too expensive, while others pay for cover without knowing how their premiums are worked out.

 Contrary to widespread belief, insurance premiums aren’t worked out randomly. They’re based on your personal risk profile, which involves looking at all aspects of your health and life. The good news is that, once you understand what impacts your premium, you can take steps to get better value without compromising on cover.

 Here’s a look at six main factors that determine your risk cover premiums, and how you can use them to your advantage:

1. Health factors - Your health is the cornerstone of your insurance premium calculations. Age is the strongest predictor, with younger people paying significantly less. The younger you are, the fewer health-related issues you are expected to have. This means less risk for the insurer and lower premiums for your cover.

Past medical history, existing conditions, family medical history, and even gender can also influence your risk assessment. However, well-managed chronic conditions don't automatically disqualify you from getting cover. The good news is that, once you're covered, any future health changes won't increase your premium. In fact, positive changes like quitting smoking can reduce your premiums over time.

2. Lifestyle choices – Speaking of smoking… this is the most significant lifestyle factor that will affect your insurance premiums. Smokers can end up paying significantly more for the same amount of cover as their non-smoking counterparts. If you really want to reduce your life insurance premium, that's one of the few things you have in your control to do so. Heavy drinking and risky hobbies such as skydiving, bungee jumping, or similar high-risk activities can also increase premiums.

3. Your job – The type of work you do can influence the insurance premiums you have to pay, particularly for disability cover. High-risk jobs like mining, construction, or security work attract higher premiums due to the increased possibility of accidents or injuries on the job. An electrician who climbs ladders and works with live wires all day is at much higher risk than a person who sits at a desk all day.

4. Amount and type of cover - The amount of cover you take out directly impacts your premium, so a life insurance policy that gives you R2 million cover will cost you roughly double the monthly premiums of a policy with R1 million in cover.  The benefits you choose also have an impact on your premiums. For example, critical illness cover is usually more expensive than life cover for younger adults because the probability of suffering a severe illness is higher than dying young. People mostly underestimate their risk of becoming disabled, and most don’t realise the impact that even a temporary disability can have on their income and lifestyle.”

5. Policy terms - The amount of time you want your cover to stay in place is another pricing factor that most people are unaware of. A risk policy with a five- or 10-year term presents less risk to an insurer than cover that lasts for the policyholder’s whole life – and that means the premiums on the shorter-term policy will be much lower. That said, most life policies in South Africa are sold as whole-of-life cover, meaning you'll always receive a payout eventually. However, for disability and critical illness cover, many policies only stay in place until age 65 or 70.

How to optimise your coverage (and reduce your premiums)

1. Get cover when you’re young and healthy to lock in the lowest possible premiums for life. "It's always better to get cover younger," advises Basson, “and that protects you against future cost increases or cover exclusions later in life.”
2. Quit smoking for the most dramatic premium reduction. Most insurers will be willing to reassess your premiums after you’ve abstained from smoking for at least 12 months.
3. Choose your coverage structure wisely. Consider shorter-term policies for temporary needs like home loan protection, and think carefully about the premium and cover increase options you build into your policy. A 10% annual increase may seem manageable now, but it can strain your budget later in life.
4. Review your cover regularly to ensure it matches your needs. Life changes like marriage, divorce, children, or even higher or lower debt will influence how much cover you need. Assessing your cover helps you avoid overpaying for unnecessary cover or being underinsured.

Risk cover isn’t static; it’s a long-term tool that should reflect where you are in life and what you need. By understanding what affects your premiums, you put yourself in a better position to get the right cover at the right price. It’s not just about affordability today – it’s about making sure your protection stays relevant and valuable over time.

It’s important to speak to a qualified financial adviser who can assess your individual needs and guide you toward appropriate cover. This content is for informational purposes only and does not constitute financial advice. Always review product details and disclosures from your insurer before making any decisions.

* Basson is the head of product at FNB Life.

PERSONAL FINANCE