Stop Smoking and Save on Life Insurance Premium

12th July 2013

Save on Life Insurance PremiumTerm insurance plans are set to undergo another development with life insurers using smoking habits as a parameter to decide premium rates.

Conventionally, life insurers have been following the practice of uniform premium rates for smokers and non-smokers alike. However, today, private insurers are passing on the benefit of healthy habits to customers by incentivising them through lower rates for non-smokers. While this differential premium has been prevalent in mature insurance markets of the West, India is also catching up to this structure.

Given that smoking is the cause for nearly five million deaths worldwide every single year, the benefits of not smoking are plenty. As per WHO reports, a male smoker lives 10 years lesser than a non-smoker, while a female smoker would reduce her lifespan by eight years, in comparison to a non-smoker.

This decline in longevity has a direct impact on the premium you would have to pay for a life insurance cover. Take a look at how you can save your cash from turning to ash.

Smokers vs. Non-Smokers:

From a life insurance underwriter’s perspective, there is a significant difference in the ‘risk’ perception of a smoker and non-smoker while offering a pure life cover. This difference is visible in the form of the premium charged by the insurer. In most cases, a smoker would have to pay approximately 40 per cent more than a non-smoker of the same age, for the same coverage.

The biggest concern of a life insurance underwriter, when looking into a proposal form, is the longevity of the proposed life. This is applicable mostly to term plans which offer pure protection without any aspect of investment. Since a smoker is usually more prone to illnesses affecting the heart and respiratory system, this reduces the lifespan of the person. As a result, the chances of the insurer having to pay a death claim increases. This is compensated by levying a ‘loading’ on the premium, which increases the amount to be paid by the customer.

Smokers must Pay More:

Consider this: A smoker who smokes an average of eight cigarettes a day would spend an average of Rs 23,360 per year. In this amount, a 35-year-old smoker would get a life insurance cover of around Rs 1.27 crore for 15 years. But a non-smoker of the same age would get a cover of Rs 1.96 crore, which amounts to a massive difference of almost 55 per cent.

Based on the aforementioned calculations, giving up smoking can fetch you a larger sum assured on your term insurance plan, which would be beneficial to your family in case of your untimely death.

What is also crucial to remember is that you must disclose details truthfully. If you are a regular smoker, it is advised that you do not lie about this on your proposal form, as this could lead to complications at the time of claim settlement.

Any discrepancy in the information provided could lead in rejection of the claim, which is definitely not a position in which you want to put your dependents. Instead, it is better to pay the extra premium and know that your survivors will eventually collect the benefit.

Some term plans offered by private life insurers provide differential premium rates for people living a healthy lifestyle, especially in case of smokers and medically fit non-smokers.

Benefits of Not Smoking:

Kicking the butt can mean a significant saving on your life insurance premium. In addition to that, some of the immediate health benefits of quitting smoking as listed by the American Cancer Society are as under.

After 20 minutes, blood pressure drops to normal. After eight hours, the carbon monoxide level in the blood drops to normal. After 48 hours, nerve endings start re-growing and the senses of smell and taste are enhanced.

These were some health benefits of not smoking but by quitting smoking your financial health can also benefit a lot.



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