The tobacco epidemic is one of the biggest public health threats the world has ever faced. According to the World Health Organization (WHO), India is home to 12% of the world’s smokers, killing nearly 10 million people annually.
While the long-term effects that smoking causes are known to many of us, however, there are other downsides to being a smoker as well. One of them is that life insurance will certainly cost you more if you're a smoker. Since the odds of dying from smoking-related grounds are so much more and have been well documented, life insurance companies protect themselves from the higher risk by increasing rates for tobacco users. It likely won't prevent you from getting a policy, but you'll feel it in your wallet. It adds to your life in other forms, i.e. by way of medical expenses and even your insurance premiums!
How smoking can affect your life insurance premium
To start with, first let's look at the basics of life insurance. You buy a policy to provide financial protection and security after you die. So, how do insurance companies exactly put a price on that security. A lot of the cost of life insurance depends on your current state of health and your family history. But what's one of the biggest factors insurance companies look at when assessing your health risk? Whether or not you're a smoker.
Many insurers consider the higher risks associated with smoking when adding a premium charge for tobacco users. This is because health hazards of smoking and the risks it puts on your life are well known. Smoking restricts your blood vessels causing heart diseases and high blood pressure. It irritates your lungs and causes lungs to produce more infections. We all get that as we age but smokers get it faster and to a greater degree.
Underwriting is when an insurance company reviews your health risks after you've applied for life insurance. This process lets an insurer calculate the coverage you're eligible for. It also ensures your premium reflects the level of risk. When you are applying for a life insurance policy, you will be inquired about your usage of tobacco products in the last 12 months. While it may be easy to lie verbally, it is practically impossible to cover up the traces of nicotine in the medical test even if you are an occasional smoker. To stay adequately cover, the customers need to be honest with the insurer about their smoking habits as life insurance companies take smoking as a serious clause and are extremely strict about it. It’s important to note that although e-cigarettes or vaping are touted as the healthier alternative to cigarettes, as of now insurers make no distinction between the two and qualify you as a smoker in the eyes of insurance underwriters.
Being a smoker puts people at a higher risk of smoking-related illnesses which translates to higher premiums.
Baseline differences between smokers and non-smokers with premium
Smoking comes with a price. But exactly how higher are life insurance rates for smokers as of non-smokers?
Whether you buy term life insurance, which covers you for a certain number of years, or permanent life insurance, such as whole or universal life, there's a distinct difference when it comes to the price of life insurance premiums for a smoker or non-smoker. For instance, let's take an example of a 30-year-old man opting for Rs 1-crore term life insurance policy. The lowest estimated annual premium who doesn't smoke is Rs 8,260. As a smoker the same man would pay 78% increase in the price for the same amount of coverage: Rs 14,750.
The table enclosed below compares the premiums of smoker's vs non-smokers by three leading insurers providing term insurance of Rs 1 crore life cover for a 30-year-old and covering age till 70 years.
Quit for good
For individuals that smoke, the best way to improve health and life insurance coverage or rates is by quitting or reducing smoking. But you will have to banish all nicotine products for at least 12 or 18 months before buying life insurance to qualify for lower premiums. If you've tried to quit in the past and haven't succeeded, keep trying. It has been estimated that it can take 8 to 30 tries to really kick the habit for good. Obviously, this is easier said than done, but there is plenty of support out there for smokers who want to kick the habit.
(The author is Chief Business Officer-Life Insurance, Policybazaar.com)