Have you recently started smoking? If you have, and you have life insurance in place, you might want to give this blog post a read. When it comes to life insurance (the type that requires medical examinations), one of the key underwriting questions at application stage is “Do you smoke?” It’s obvious why a life insurer wants to know if you smoke. Smoking is dangerous to your health and can result in all types of chronic diseases including some nasty stuff like Cancer. Life insurance companies know this and they hand out hefty premium loadings to smokers as a result. In fact, you can pay almost 50% more for your life insurance if you are a smoker – ouch!
The question is this:
If you took out your life insurance policy as a non-smoker and started smoking again, do you need to notify your life insurer and what are the implications if you don’t?
The short answer to the question is “Yes”.
If you start smoking, you should notify your life insurer.
Why do you need to do that?
So that they can apply smoking rates to your premium.
Remember that when you took out your life insurance policy you entered into a legal contract with your insurer. To hold up your end of the bargain, you need to do the following:
- Pay your premium on time (generally on a month-to-month basis)
- Make sure you didn’t lie about anything to the insurer during your initial application
- Make sure that if there is a change in your personal circumstances that will influence your risk, that you notify the insurer
It’s the third point which is key.
You have an obligation to let your life insurer know that you’ve started smoking again.
What if you don’t let your life insurer know? What if you simply forget, or even worse decide that you just won’t say anything?
Let’s assume for second you took out your life insurance in your early thirties. At that point you were super fit and didn’t smoke at all but enjoyed the occasional beer with your mates. In general, you lived a very clean lifestyle and were the perfect risk for a life insurer.
Fast forward a decade and life is very different. You are now knocking on the door of being 40 and things are different. Work is stressful, you’ve packed on 20kg and you are smoking like a chimney.
It occurred to you that you should probably let your insurer know that you’ve started smoking but the thought was fleeting and you simply never got around to it.
Let’s make one more assumption even if it’s a little morbid.
Let’s assume that you didn’t make your 40th birthday and died of a heart attack on your way home from work one evening.
Is your life insurer going to pay out?
It’s a tricky question to answer because each life insurer could have a different set of rules they apply to a case like this. If the life insurer can prove that your death might have been as a result of smoking (and not an accident like a car wreck), they will be well within their rights to repudiate your claim.
That means no payment for your beneficiaries.
If the life insurer doesn’t flat out refuse to pay your claim, they might use this type of logic: You said you didn’t smoke and in actual fact you did. Before we pay out the proceeds of your policy to your beneficiary, we are going to deduct all the additional premiums you should have been paying as a smoker.
The calculation could look like this:
- Your beneficiary is owed R1,000 000
- The life insurer has calculated that over the lifetime of the policy you should have paid an additional R200,000 in premiums as a smoker.
- The net amount payable to your beneficiary is the difference – R800, 000
The bottom line is that you don’t want to take any chances.
If you have started smoking, rather let your insurer know. They will load your premium, but the if you decide to stop (generally has to be for at least 6 months) your premium will be reduced again.
Until next time.
The Wise About Life team