Life insurance premiums: Is this fair?

I’m not sure if this belongs in GQ or GD.

I have decided I need to purchase some life insurance. I can get an online quote, after filling out a questionnaire. One of the questions is:

Have you ever used any form of tobacco, nicotine product, nicotine substitute or marijuana?

If you answer “Yes”, you get:

Have you used any form of tobacco, nicotine product, nicotine substitute or marijuana during the last 12 months?

If you answer “Yes” to that one, you get:

*How many cigarettes or cigars do you smoke a day?

[li]less than 10 cigarettes or 1 cigar or 2 pipes per day?[/li][li]10 or more cigarettes or more than 1 cigar or 2 pipes per day?[/li][/ul]
After running through all the questions a few times, changing one answer at a time to see how the estimated premiums are affected, it appears that no matter how you answer that last question (how much do you smoke?), you have been categorized as filthy smoker and your premiums are approximately double what they are for non-smokers.

The thing is, I smoke about 20 cigars per year, and maybe 20 cigarettes per year. If I answer the question truthfully, I will be paying the same premiums as some one who smokes 3 packs of cigarettes per day.

Is this fair? Can anyone direct me to a scientific study that indicates that my level of tobacco use leads to any increased risk of untimely death?

Also, what are the potential ramifications of me answering this question less than truthfully (OK, lying)? If I die tomorrow, and they somehow found out about my 1-cigar-per-week-only-in-the-summer habit, would they refuse to pay out? Or would they only refuse to pay if I died of smoking related causes?

How could they find out? I doubt they’ll have somebody drive by my house every now and then to see if I’m out on the front porch with a cigar. Might an adjuster show up at my funeral to see if my love of cigars is mentioned during the service?

If I call the insurance company, instead of applying online, do you think there might be any room for negotiation on this issue? Or does the call-centre guy just ask you the same questions and say “that’s our policy, there’s nothing I can do”?

Any life insurance adjusters here?

ETA: I don’t think there’s anything illegal about lying to the insurance company, is there? Just unethical? Or is it insurance fraud to misrepresent yourself on their questionnaire?

Their actuaries figured out that was the best way for the company to set rates so I can’t call it completely unfair. It is hard to tell how much someone smokes if they do at all so it would be hard to deny a claim if someone claimed 10 cigarettes a week on average but really smokes 5 packs a day.

However, I encountered a really unfair sitaution once. I applied for life insurance when my first daughter was born and the application asked specifically if I smoked. I do not smoke although I did dip snuff at the time so I replied No to the question which was true. A nurse came to the house to check me out and drew some blood. I got a nasty letter a couple off weeks later saying that I tested positive for nicotine which contradicted my application so I was banned from further consideration. Uh no, I really don’t smoke and that is what they ask. It was a check box, not a request to write an essay on the various interpretations of the question. That form of tobacco is a lot safer than smoking anyway.

No, it’s not fair but insurance companies really don’t have any choice but to put people into groups that roughly correspond to higher and lower risk. How else would underwriting work? At the end of the day, some people who are higher risks will get lumped in with some people who are lower risks.

Also, it would be difficult and expensive for insurance companies to distinguish between heavy smokers and light smokers. Obviously most people would lie and say they are a light smoker. It would be difficult for the insurance company to demonstrate that this is a lie.

Most likely, they’ll require you to take a physical before granting the policy, and if the nicotine shows up – as in Shagnasty’s case – your application will be denied.

I suspect that the policy might also have disqualifiers if you die of a smoking related disease.

As to your other question of the evidence of risk from that amount of cigar smoking, that’s a question for your doctor. The company you are dealing with obviously feels that it does make you a higher risk.

In general, the online life insurance policies are aimed at the lowest-risk customers. In your case, dealing with a live agent might be the best solution. A local broker can answer these questions better than any of us can, and I’d wager that he can get you a much better price on a policy.

Like the OP, I would like to know if a couple of cigars during the summer months would cancel a payout if the adjuster showed up and interviewed a few friends.

I think that some life insurance policies come with non-contestability clauses, which provide that if you have the policy for more than a certain amount of time, the insurer cannot refuse to pay the claim on the ground that your application was fraudulent.

So you might try to get a policy with this sort of provision in it. Of course, this may trigger closer scrutiny.

In your case, it sounds like their form and their policies were two different things. Their forms should have said “do you use tobacco in any form”. Their testing worked that way. I think you had good grounds for appealing that decision!! Now if the form had been phrased “do you use” then their actions would have been justified (and reasonable to have that policy; snuff may be safer than actual smoking but there are risks of oral cancer etc.).

Former life insurance agent here. I will leave the “is this fair” question to the GD crowd, those people scare me.
I will address the question of lying on the application.
To the best of my knowledge all life insurance policies in the United States are incontestable except for non-payment of premiums after a period of two years after date of issue.*
So if you make it past two years you are golden. If you die in the first two years from a non-smoking related cause (say you get hit by a train) there is probably no problem. If you die from a smoking related cause, one of two things would happen. The company would deny the claim or adjust the payout for what the premium would have bought for a smoker.
To clarify the weaseling in my answer above, a lot of this depends on how large a policy we are talking about, and the company in question.
A $10,000 policy from a major old line insurance company is very routine, and the claim won’t get looked at much. (To give you an example I found fraud in a 10K claim I was processing that claims completely missed. Funny story, I’ll tell it if anyone cares)
On the other hand a $2,000,000 dollar policy drawn on the Wild Life of Reseda (assets of a buck seventy five, and a one month lease on the building) will get looked at under a microscope.

*I am only talking about regular life insurance policies, not accidental death policies, not dismemberment policies, not travel policies, not group insurance policies.

I believe it is fraud. This is based on my experience advising people about health insurance applications in an employer plan. I suggest you look very carefully at the fine print of anything you sign. There is probably some language regarding the truthfulness of the information you provide.

Are you looking at multiple companies? Are they all phrasing the question the same way? Can you find one that phrases the question more favorably to you?

I’d agree with this. I smoke a pipe and enjoy the occasional cigar also, and my life insurance agent/broker looked around and found me an insurer that didn’t really care if I had an occasional pipe or cigar. They did care about smoking cigarettes, but my twice-a-week pipe and no-more-than-ten-a-year cigars didn’t bother them. But if the broker/agent didn’t look for me, keeping in mind my specific wants and needs and issues, I probably wouldn’t have found this insurer on my own. Given your specific issues on tobacco use, it’s probably a good idea for you to speak with a broker/agent about everything rather than trying to shoehorn answers into a generic online application.

So let’s take the case of Andy Kaufman who died of lung cancer at age 35. If he had applied for life insurance six months before, would the insurance have considered it a “smoking related” death, even though all of his friends, family, and he himself stated that he had never smoked in his life? Or Dana Reeve for that matter, a non-smoker dead of lung cancer at 44. Or a heart attack or emphysema, etc.

I love these questions because they are silly. Ok, maybe I don’t smoke, but I drink two half-gallons of whiskey per day and LOVE to drive at 100mph when I get wasted. I get the discount rate, but the guy who enjoys a cigar once every six months is “high risk”! LOL

I admire your fortitude but insurance companies are simply businesses and don’t care about the minutia of your individual life or anyone else’s for that matter. They only deal in statistics and actuaries are highly trained and pretty academic professionals that decide how to divide people into the best groups so that they can make money. Statistics are a fascinating thing when you start to deal with even moderately large populations and they know that for every daily drunk driver that signs up, there is another health freak under the same plan that doesn’t take any risks at all. They just use the numbers in their favor so that they make money. As long as they did their research and math right, those $500,000 claims will be more than offset by the revenue coming in from their plans design. They are basically like bookies and it is all a sophisticated numbers game that happens to be of their own design so they have to take responsibility for how it all plays out and it is usually in their favor.

I bought a 20 year term plan on my wife a few years ago, and went through the same problem.

My wife doesn’t smoke cigs, but she does smoke about 1/4 ounce of pot during a month. I’ve been nagging her to quit, but she says it helps her arthritis.

In any case, 1/4 ounce of pot in a month is about 1 joint a day, not very much.

We were 100% honest with the agent, and as soon as we disclosed the smoking, the premium went from $41 a month to $148.50 a month.

They classified her as someone who smokes a pack a day++, and based the premiums on that.

Ho hum, I don’t like it, I’ve been begging her to quit, I’ve even offered to put $100 a month into her RRSP just as a good will measure. (hey, I’d rather give it to her than the isnurance co.)


Hi Rick,

Thanks for your industry insight! Insurance agents et al are too often painted with a broad (and evil) brush, so it’s nice to get actual human perspective.

Do you think you could expand a bit on your post?

Do you mean (generally, YANAL, YANAHIA[sup]*[/sup], etc.), that if after two years, MrSquishy called his company and told them he actually was a three-pack-a-day, heroin-using, bi-sexual prostitute, they couldn’t drop him? Could they raise his rates? If so, couldn’t they just avoid the incontestability by pricing him beyond his ability to pay (i.e., similar to the “the power to tax is the power to destroy” argument)?

What is a “smoking-related cause?” I thought one of the giant lawsuit-related loopholes was that while smoking statistically increases certain risks, the specific etiology was broader. Do you mean that they had a list (e.g., lung cancer, emphysema) they compared cause of death to? How low of a smoking-increases-the-risk threshold was there? Sure, lung cancer/emphysema are obvious, but surely there are other increased risk factors that, so, are also found in long-term exposure to benzine (for example).

Then what, they denied outright or had the doctor run tests? What if the body wasn’t available for tests? Were they required?

By adjusting “the payout for what the premium would have bought for a smoker,” do you mean they would calculate the premiums paid over time, and see how much that would have bought a smoker–as in if a smoker’s rates were three times as much, they would get one third the payout? Or is it more complicated than that?

Lastly, I didn’t understand what you meant by “On the other hand a $2,000,000 dollar policy drawn on the Wild Life of Reseda (assets of a buck seventy five, and a one month lease on the building).” What is the Wild Life of Reseda? An insurance company? Assets of a buck seventy five? Is the buck part of the wild life? How does the building fit in? IOW, while I think I can parse out your general intent, I don’t understand the nuance.

Oh, and if I haven’t put you off with all these questions, do share your story!!!



[sup]*You Are Not A Lawyer, You Are Not Anyone Here’s Insurance Agent[/sup]

The only thing I agree with is the “make money” part. They get an extra surcharge from smokers with no additional risk attached. Why, because as you pointed out, for every smoker, there is a health nut non-smoker to balance it out. Actually since smoking is at an all time low (about 19% of the population down from a high of 50% in 1961) the insurance company faces an all-time low risk from it. And that’s just regular smokers. We are even talking about the money they are taking from the “once every six month cigar smoker”. He poses absolutely ZERO additional health risk, yet gets his premium increased accordingly.

They SHOULDN"T care about the minutia of everyday life, but they decide to pick on ONLY smoking to the exclusion of other dangerous behaviors. Why doesn’t smoking “balance out” just like the drunk driving example I gave?

You are right. As highly monopolized and regulated as they are, their desire for money should be tempered by fairness.

The whole problem with most things in society are, in no particular order: Doctors, Lawyers, and Insurance Comanies.

Think about how intertwined they are and how almost every decision or policy serves to throw more money at these groups.

Hi Rhythmdvl
::: waves:::
OK, in no particular order.
The wild life of Reseda is the name of a mythical insurance company. Life insurance companies have more money than OG. Their assets can easily run into the billions of dollars. So the WLofR having assets of $1.75 isn’t much. (buck is slang for one dollar) The point here is that a small policy with a large company won’t attract near the attention that a large policy will, or what a large policy with a small company will.

Adjusting the payout. In a life insurance contract there is a clause called miss-statement of age/sex. Basically if you tell the insurance company you were born in 1955, and when you die your death cert reveals that you were born in 1954, the contract will not be void. What will happen is the payout is adjusted for the premium paid would have purchased if you have given the correct info in the first place.
In this case, let’s say that $100,000 costs $50/month for a non smoker, and $100/month for a smoker. You tell your insurance company that you don’t smoke, when if fact you do. You die in the contestable period of a smoking related cause and an investigation revels that you smoked like a fricken chimney. Rather than voiding the policy, the company might offer to rewrite the policy for what $50 would have bought at the time ($50,000) cut a check to the beneficiaries and be done with it. While this might make them seem magnanimous it is actually a smart move if it keeps them out of court. Voiding the policy will almost assuredly bring a court case, and the costs associated with that.

Incontestable means just what it says. If I won the lotto tomorrow, and took up SCUBA diving, auto racing, and bought an airplane, the insurance company cannot change my rate.* Hell, I could take my winnings to Vegas and use it all on cheap hookers and blow, and the company would not care. As long as the premiums are paid, the insurance stays in force. This is a fairly common misconception that the life insurance company cares about what you do. They don’t. They don’t care about any one individual; they only care about what large groups of similar people do. If you are looking at a large enough group, if one of them moves to Vegas and goes the hooker and blow route, another member is entering the monastery.

So how would they find out? The death certificate would be the starting place. If that reveled something that looked odd (say lung cancer) and they wished to contest it, they would look at your medical records. You sign a medical release when you buy life insurance that gives them access to your medical records. If you medical records show that you are a long time smoker… well let’s say they now have the smoking gun, if you get my drift.

The story
It was the late 70’s I was working as an agent for a large insurance company. I was in the office one day doing desk duty (assigned to assist anyone that called in or walked in). I got a call that Mr. Smith had died. It was his wife (beneficiary) that called. Mr. Smith had just applied for a $10,000 policy. The agent that sold the policy had been on disability for about 6 months.** If fact the policy had been issued and was sitting in our office waiting for the agent that wrote it to deliver it. Now the deal is that if a premium is paid with the application, the insurance is in force from that moment.*** I checked and the agent had deposited the premium payment with the application. Cool, the insurance is in force.
So far all of this is completely normal. I must admit first year claims are very rare, and claims before the policy is delivered are very very rare, but they happen.
So I make an appointment to fill out the paperwork. It turns out that Mr. Smith was driving home, and someone in another car gave him lead poisoning via a 9mm. I filled out the paper work, got a copy of the death cert and the police report. I asked for the receipt from the application (which is the temporary policy). Mrs. Smith came back with a disability income receipt. WTF? Did Mr. Smith apply for more than one policy? No just life insurance. The receipt is attached to the application, so if the agent had an app they had a receipt to give out.
At this point my spider sense is starting to tingle. So I casually mention, agent Jones is a very nice person, I like her a lot and hope she comes back off disability soon. “Oh yes, I have known her for years, and she is a wonderful lady.”
:eek: At this point my spider sense is on high alert, and the robot is screaming “Danger Will Robinson, Danger, Danger!” So I make nice and leave.
I get back to the office and read the police report, and death cert. I start looking at dates. The more I look, the more I go :dubious: . The app was signed on Friday, Smith was killed on Saturday evening, and the app was turned in on Monday. The deposit was paid in cash. (a little unusual)
Anyway I send in the claim that day, and composed a 7 page letter covering my concerns about this case. Since it appeared that the agent was involved, I had it typed by a friend that worked for another firm.**** I sent it off to the head of claims. The next day, I got the check for $10,000 from the claims dept. I held off delivering it, and the next day the head of claims called me.
We chatted for a while, and he complemented me on a good catch. He agreed with my points and asked that I not deliver the check.
Any an investigator from the NY home office shows up a few days later to interview me and several other people in the office about this. This guy looked like an ex-NY cop. Think Stacy Ketch as Mike Hammer.
Anyway when it was all said and done, the money was not paid out, and the premium was refunded.
The bummer of the deal is that the Banacek really is fiction. :frowning:

*There may be some term policies that require you to re-qualify from time to time. The company may be able to re-rate you at those times. It has been over 25 years since I was in the business, and there have been many changes since then.
** Agents were allowed to write policies while on disability if they wished. Not uncommon.
*** For accidental death, for other causes (medical) it would be in force after the insured passed a physical. Since this size policy did not require a physical, it was in force from when the app was signed.
****It’s not paranoia if they really are out to get you.

Because all the other insurance companies know that, on average, you will end up paying out more money on smokers, so their rates go up. If your insurance company doesn’t do that, they’ll get all the smokers and end up losing a lot of money.

How do you ask about drunk driving on an application?

:rolleyes: Just a wild guess, but I got $5 thats says you are not an actuary.

We’re are straying into GD territory here, but the reason is that you can stop smoking today and not undo the health risks you’ve exposed yourself to.

And in fairness, I’ve never seen a life insurance questionnaire that only asks about smoking. They almost all ask about treatment for and/or family history of things lke high blood pressure, cancer, cholesterol, heart disease, depression, and diabetes.

Keep in mind that life insurance is nothing more than a bet about how much longer you’ll live. The whole business model for insurance companies is based on their being able to predict your life expectancy better than you can.

Not only do they ask questions about dangerous behavior other than smoking (i.e. sky diving, racing, scuba diving etc…) they also ask questions about medical history and your family’s medical history. For larger amounts they even have you undergo complete physicals that may include EKGs, blood and urine tests and what ever else the actuaries want.

Unlike health insurance, life insurance is extremely competitive and there are no monopolistic companies at all. I’m not sure where that idea comes from.

Also, why would a non-smoker wish to pool his risk of dying early with a smoker? I wouldn’t want to subsidize smokers if I didn’t have to, why should they?
P.S. I like doctors, they’ve helped me on numerous occasions.