Why are Term Insurance Premiums High for Smokers?

It is hard for many to get rid of an addiction like smoking. It can cause a whole range of respiratory illnesses and completely change the quality of life you have. In fact, in many cases, it can lead to cancer and in extreme cases, death. As per WHO data, more than a million deaths happen each year in the country due to consumption of tobacco. However, what you may not know is that smoking can also be injurious to your finances.

The perfect example of this is life insurance policy. The premium for life insurance is often calculated based on your surroundings and your lifestyle. For example, your job profile is a huge factor in deciding the life insurance premium you would have to pay. While, the premium for jobs with a higher risk quotient will be high, people with low-risk jobs will likely get a lower premium. A similar logic is applied to smokers and non-smokers.

Categorization of Smokers Categorized by Insurers

Life insurance providers often categorize smokers into three categories. These three categories include a typical smoker, preferred smoker, and table-rated smoker. A typical smoker is someone who smokes and has a minor health issue. A preferred smoker is someone who smokes but does not have any major health issue. The third and final category includes smokers who suffer from a major health issue. Based on these categories, insurance providers decides the premium that will be charged for the term insurance plan.

This data is collected at the time you approach the insurance provider to buy a term plan. The insurance provider will ask you questions about your smoking habits. This can include information of how long you have been smoking, how often you smoke, and if you have had any changes in your health due to smoking. Anyone who consumes tobacco or nicotine in any capacity, is immediately included in the category of smokers. Based on your usage, you will be added to one of the three categories. Hence, as soon as you tell your insurance provider you consume cigars, cigarettes, beedis, etc., you can consider that your insurance will cost you more. At this point, the only question that matters is how much and how often you consume tobacco.

Secondly, it doesn’t matter if you develop the habit of smoking after buying the plan. If you start smoking after you buy the plan, you have to inform your insurance provider. It is extremely important to do so at the earliest. If you fail to update your insurance provider, you can get into legal trouble for withholding vital information. This can lead to your policy being terminated or even prosecution for swindling.

A smoker has a higher chance of developing respiratory and other types of illnesses. This means there is a higher death risk with smokers. It is evident by the high mortality rate of smokers. This puts the insurance provider in a position where it is almost a guarantee that the policyholder will end up dying and they will have to disburse the sum assured. Hence, smokers are usually required to pay a higher premium for even the basic amount of term life insurance cover.