Quitting smoking can bring down your term insurance premium by up to 75%

Smokers are more vulnerable to co-morbidities and critical illnesses, which calculatedly increases the underwriting risks for insurance companies.

Did you know that the premium for a smoker's life is approximately 40-75 per cent higher than the premium for a non-smoker? While the exact difference may vary and would depend upon the age, premium payment term, policy term and plan option opted by the customer, the fact is that due to increased health risks, smokers are statistically more likely to make insurance claims, leading to higher premiums to offset the added risk for the insurance company.

How does the term policy work for smokers?

A term insurance applicant is categorized as a smoker if he/she has consumed tobacco in any form in the last 12 months. "Smoking is known to make someone prone to various ailments and increase the risk of cancer, heart diseases, lung diseases and other chronic illnesses. This makes such individuals to be placed in a high-risk category when seeking life insurance, thus increasing their premium compared to a non-smoker. The premiums for a Term Plan for a smoker could be 40-50% higher compared to someone who doesn't smoke," said  Srinivasan Parthasarathy, MD & CEO, Go Digit Life Insurance.

 

Also this: Smokers are more likely to file for a claim on an insurance policy due to premature death or suffering from a critical illness in the later stages of life, making them a cost for the insurer. The higher premium charged is actually a way for insurers to offset their overall costs incurred during a claim settlement, which, by the way, increases in probability.

Policybazaar has curated the monthly premium for cover of Rs 1 Crore (33 year old, cover till 60)

Don't lie

When you sign up for a policy, your insurer will ask you if you smoke, and gather detail about your smoking habits. If you have smoked more than four times a week and continued this for six months, you are termed as a smoker. If you've stopped using tobacco for at least three to five years, companies typically will charge you the same rate for life and health insurance as they would a non-smoker.

"Considering how this habit can push you to a higher premium bracket, you might be tempted to withhold this information or lie about this. However, be informed that such misrepresentation or lies would be insurance fraud. Do not falsify this information since this might become a major roadblock during the claim settlement process. If the deterioration of your health is found to be associated with your tobacco consumption or smoking, and you haven’t declared this in the proposal form, or in case the insurer gets suspicious about this when you raise a claim, the company will order an investigation into the medical status. You don’t want to have to deal with an ugly legal battle when you’re already stuck in a medical contingency," according to Future Generali Life Insurance.

How can an insurer verify if you are a smoker or not? 

A medical test is typically conducted by the life insurer before issuing a Term Life plan. Different tests taken as part of the medical check-up help the insurers determine different health ailments one might currently have or could be exposed to.

"Insurance companies can ask for medical examinations, though blood/ urine cotinine test, to identify if a person is a smoker or not. They are authorised to investigate a person’s smoking habits. Smokers usually have traces of nicotine in the urine and blood. Thus, these medical tests can reveal a person’s smoking habits. Consumers should always be honest during their enrolment into any insurance, hiding about smoking habits or other pre-existing ailments can lead to issues with claim rejection," said  Indraneel Chatterjee, COO & Co Founder, RenewBuy.

I quit smoking six months ago. Should I apply for term life insurance as a smoker or a non-smoker?

Term insurance companies categorise applicants as smokers if a person has smoked or consumed tobacco in the last 36 months. However, it is advised to share your health history with the insurer to avoid hassles later.

"You can purchase a term insurance policy even if you have smoking history and smoker rates shall be applicable for such applicants. Alternate way to get lower premium i.e. non-smoker rates is to have a non-smoking status of at least 12 months, since the last smoking history," said  Sunil Sharma, President, Chief Actuary & Chief Risk Officer, Kotak Mahindra Life Insurance Company.

How long do you need to wait to buy a term insurance if i have quit smoking? 

The underwriting rules differ from one insurer to another. "For example, certain insurers may consider you a non-smoker if you haven't used any form of tobacco for the past 12 months, while other insurance plans may extend this period to 3 years. This waiting period allows insurance companies to assess your new non-smoking status and potentially offer you more favorable premium rates compared to what a smoker would pay. However, the exact waiting period may vary depending on the insurance company's policies and underwriting guidelines, so it's advisable to check with the specific insurer you plan to work with for their requirements and recommendations regarding this matter," said  Rhishabh Garg, Head - Term Insurance, Policybazaar.com.

Also, if traces of tobacco use are discovered during the underwriting process or through medical tests when applying for a term insurance policy, the insurance company may ask for an additional premium.

"However, if a person is a smoker while purchasing a policy and quit smoking during the tenure of the policy, the premium for that policyholder will not come down midway," said  Renewbuy's Chatterjee

What happens if a non-smoker taking term insurance becomes a smoker after a few years?

To ensure complete transparency, it is recommended to inform the insurance company of your changing lifestyle habits. The insurance company may reject your nominee’s claim if any discrepancies are found later. Therefore, it is better to be honest and avoid any inconvenience for your family in your absence.

Do I need to pay a higher premium if I start smoking after buying a term policy? 

No, one would not need to pay a higher premium if one starts smoking after buying a Term Life plan. However, at the claims stage it might become difficult to prove whether the disclosure on non-smoking was made correctly or not.

How can you save on your term insurance premium? 

The most effective way to reduce your term insurance premium is to quit smoking. Many insurance companies offer lower rates for non-smokers. If you can remain tobacco-free for a specific duration (often around 12 months), you may be eligible for non-smoker rates. This can lead to significant savings over the life of your policy.

It is also wise to explore options by comparing premium rates amongst various insurance providers and then decide on the best premium price, depending on the requirements. 

"One good way to save on premiums is to start early. Starting early not only helps in seeking better terms from the insurer, but one also gets the best rates when one is young and healthy. Maintaining a healthy lifestyle is another good way to get better premium rates for your Term Plan as insurers typically check your medical history before issuing a policy. One can also maximise their tax savings by opting for a Term Plan by claiming deductions of up to Rs 1.5 lakh under Section 80(C) of the Income Tax Act. The proceeds received to the family on the death of the policyholder is also completely exempt from tax," said Parthasarathy.