Breathe easy, my friend.
We are not jumping on the anti-smoking bandwagon. (But neither are we encouraging it)
And we are not here to highlight the plethora of health issues that adorn each pack, ever so graphically.
If you smoke on a regular basis, you are well aware – and may have already accepted – the potential risks that come with each puff.
That is one of the most wonderful things about being an adult. We make our own decisions and accept the consequences. Adverse or otherwise.
Health risks aside, how are smokers treated differently from non-smokers when it comes to insurance?
We systematically dissect the differences between the different types of insurance plans here.
Set your lighter down and let’s begin.
Throughout all the comparisons, we will be using the gold standard for insurance plan comparisons.(That would be a male aged 30) All other parameters will be adjusted accordingly.
We will compare the difference between Endowment plans, Whole Life plans, and finally Term Plans between smokers and non-smokers, paying extra attention when Critical Illness is included and excluded.
Throughout the comparisons, we will choose the same plan from the same company to make the comparison a fair one.
Round 1: Endowment Plans
Endowment plans focus more on providing returns over time, with less emphasis on the coverage component. So we expect the difference to be minimal right?
Only one way to find out.
Without Critical illness cover, a smoker would expect to get 0.59% less in returns compared to a non-smoker.
Now let us throw in CI cover.
With Critical Illness cover, the difference in returns increases to 1.21%.
Ok we hear you – a measly 1.21% difference isn’t anything to shout about. Let’s proceed to round 2.
Round 2: Whole Life Plans
Whole Life plans provide a mix of coverage as well as returns over time in the form of cash value built up.
Once again we begin the comparison by leaving Critical illness cover out first.
We notice that in both instances, the guaranteed and non-guaranteed death benefits are identical. What is not identical, however, is the price. Smokers are required to pay nearly 10% for the exact same benefits.
How would the price difference change once we include CI?
It is going to be a whopping 14.5% increase. Over the lifespan of the entire policy, a smoker needs to fork out an additional $10,680 for the plan compared to a non-smoker. (I heard you wince from back there)
But the last bastion of hope would be in Term plans. They are the no frills version of insurance, providing pure cover and tend to be cheaper. Surely a smoker can take solace in them.
Ding ding! That’s the bell for round 3.
Round 3: Term Plans
Touted as the cost-effective insurance option that everyone should buy to save on premiums, term plans are popular with folks that prefer to handle their own investments and segregate their protection and investment needs.
As always we start off with a plan that does not include critical illness cover.
Holy Smokes! The same exact plan costs the smoker 47% extra!
What happens when we throw in CI?
Are you alright? Take a moment to calm yourself. The figures are correct – that’s a 52% price hike that is tagged on to smokers.
It almost makes the 30% increase in water prices seem reasonable.
PS. All comparisons were done using our own comparison engine. You can access it here.
A word to the wise
Smokers do have to pay more for insurance, in general, when compared to non-smokers. For plans that focus more on protection – the difference can be up to 50% extra in premiums.
Why the extra cost? It is the extra risk that insurance companies perceive smokers to have (which is another way to think about the real price of smoking), and thus compensated accordingly.
This isn’t an article to urge you to quit smoking. Those are aplenty.
This is an article that is meant to highlight the additional costs of smoking so that you can make an informed decision. In addition to the increased health risks, the cost of cigarettes, now you can throw in additional insurance premiums into the growing list of reasons to quit.
Do ponder about it the next time you light up.
Share this article with anyone that smokes – you may just help them to make an informed decision as well.
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.