TUESDAY, NOVEMBER 1, 2011
Effects of Smoking on Insurance Rates & Premiums
by Ed Snaneh, Illinois Health & Life Insurance Agent in Chicago
Smoking is a social habit that is perceived by many people as 'bad'. Studies have revealed that there is strong correlation between smoking and a number of dangerous heart and lung diseases. Also, smokers have shorter life expectancy according to mortality rates prepared by professionals.
From this it is clear that there is a correlation between smoking and certain insurance rates, especially insurance rates that are pertinent to people's health and life.
Definition of Smokers in the Insurance Business. A very common definition of a 'smoker' in the insurance dictionary is 'any one who used, consumed or smoked any tobacco product, including chewing tobacco, pipes, hookah, or cigarettes in the past twelve months.' In other words, if you smoked but quit smoking some 10 months ago you are still classified as a smoker, for insurance purposes.
Smoking in Health Insurance. This is probably the most clear issue when it comes to the connection between insurance rates and smoking. Since people who smoke have higher morbidity (sickness) ratio then their insurance rates will be much higher for the simple fact that, generally speaking, smokers get sick more often than non smokers, and hence their healthcare costs paid by insurers are typically more for smokers than non smokers. Most insurers charge smokers 25% and higher because of their smoking habit.
Smoking in Life Insurance: Most studies indicate that non smokers outlives smokers by about 7 to 10 years, depending in age. Smoke cessation improves life expectancy by over 3 years or better if the smokers quit at age 60 or below. Clients of life insurance who smoke are expected to pay much more than those who do not smoke, perhaps 20% or more of the 'cost of life insurance'. It should be noted that the effect of smoking is on the 'cost of life insurance' portion, and not the total premium of the life policy. Example: If the monthly premium of a universal life insurance policy is $110.00, of which is $15 as the cost of life insurance (and remainder for administrative & sales fees, saving elements for insured, etc.) for someone who is non smoker, then another insurance policy for a person of same age, gender, health conditions, may experience an increase in life insurance premium that will be applied to the cost of life insurance portion, and not the overall life insurance premium.
Smoking and Accidental Insurance
Increased rates of health insurance for smokers is also applicable to disability income policies and any other insurance policies that are based on the health of the client. Some accidental insurance policies that pay the insured people if something happens to them, ie hospitalization or disability, specified health care benefit in case of accident (not disease), will not take the smoking status in account when tabulating the insurance premium. This is because of the fact that the chances that the insurer will pay a claim is based on chances of 'accidents' occurring, an accident that has nothing to do with smoking or the lack of it. A typical example of this is 'Occupational Accident' policies that pay all healthcare costs in the event of occupational accidents. Accidental life insurance policies and riders follow the same rules (smoking or not accidental life insurance charge the same because they pay only in case of an accident, not natural cause.)
Smoking in Auto Insurance and Homeowners Insurance. Few companies do offer 'Non Smoker Discounts for auto insurance customers' and Non Smoker Discounts for Homeowners. Most of these discounts are either symbolic or immaterial.
People who were issued policies with smoking status, at higher premiums, can always request status and rate adjustment, after 12 or more months from smoking cessation date. This can be accomplished with a written request to company home office, although evidence of insurability will be required at the time of making the request. This means that if someone was issued a policy with a smoker status, but later stopped and applied for a rate or status adjustment to Non Smoker, then the person my also have to be healthy (heart attack, diabetes, etc that may have come to the picture since the client originally took his/ her policy will be considered in the adjustment request!) In other words, if other health issues were worse than originally started the client may be better off keeping the same status without any status and rate adjustment.