Truth or Dare: Term Life for Smokers Essential Q&A

Original article by James Mason, CLU American Underwriters Association. Reproduced with permission.

We are all creatures of habit. Life would be boring if everybody lived according to what is considered right and what is considered proper. Smoking is one of those ‘devil may care’ vices that some say define us as adult, carefree, fun loving, or plain hedonistic. Many of us enjoy the benefits of a relaxing smoke, but there is nothing beneficial about term life insurance for smokers when it comes to making a claim. So why not be ‘flexible’ with the truth when it comes to applying for a policy?

Nobody is more careful than insurance companies. They like to take your cash, but as we all know, they’re not as keen to give it back. For this reason, insurers have created the three tiers of health classification for the purpose of defining your premium, which they somewhat ambiguously term preferred plus, preferred and standard. Makes perfect sense, right? The official cut-off between being an insurance risk and a health freak is five years of abstention (preferred plus). Three years without nicotine will benefit your wallet (preferred), and you will be allocated the standard rate should you have not lit-up in the last twelve months.

What defines a smoker in the eyes of plan providers? Five a day? Ten a day? A pack? What will an insurer do if you’re caught out? What are the financial implications of lying on your policy application? You may find the answers surprising...

Q: How much do you have to smoke to qualify as a smoker?

A: All you have to do to qualify as a smoker in the eyes of an insurance provider is answer in the affirmative to having used any type of tobacco in the last three years. This includes all types of tobacco products, including cigars and chewing tobacco.

Term life insurance for smokers rates are allocated to those having used any amount of tobacco, even if it’s a cigar at Christmas or a sneaky cigarette at a friend’s 35th birthday party for old time’s sake. There are some life insurance companies that will make allowances for the very occasional smoker or cigar smoker buying term life insurance. 

The traces of nicotine (or cotinine, the trace chemical left in the bloodstream as a metabolic by-product of nicotine consumption) are technically enough to classify you as a user by insurance providers. If you have used tobacco products this casually, it is unlikely they will show up in the mandatory urine sample or even the blood sample that you will be asked to provide in your paramed exam. It is down to the conscience of the individual as to whether this is declared to the insurance company or not.

Q: How long will I have to wait to before qualifying for non-smoker's rates once I quit?

A: This is definitely possible, but the window of time you will be required to wait to re-apply for a lower rate may vary from one insurance company to the next. This is usually between one to two years.  This is a very important consideration because most people who smoke actually want to quit and many of them do. 

If you are trying to quit or have scheduled to quit in the future, you will want to ask your prospective insurance company what their policy is regarding lowering rates from term life insurance for smokers to their non-smoking counterpart. Keep in mind too that if you quit and reapply for a life insurance policy with a lower rate there is a good chance that you will have to undergo the underwriting process again.

Q: What are the differences in term life insurance for smokers rates?

A: A non-smoker buying a policy can expect to pay significantly less than a smoker. Those squeaky-clean preferred plus individuals buying a 25 year term life insurance plan with a value of $500,000.00 can expect to pay around $380.00-$460.00 per annum. A healthy tobacco user can expect to pay two to three times that amount.  With this in mind, it’s no surprise that people are prepared to manipulate the truth when applying for a policy.

Q: Is it possible to succeed in your deception?

A: Life insurers are particularly vigilant when it comes to non-smokers; after all, a confessed smoker has no reason to lie on their application. Special attention will be paid to the results of the samples given in the term life insurance paramedical examination, but often these levels are low enough to discount a smoker from having to apply for term life insurance for smokers. It has been a long established fact that nicotine (cotinine) levels in the blood break down within three days of somebody last using tobacco.

Government recognized smoking action centers have campaigned for stricter testing methods, such as random testing and more stringent blood screening in light of the fact that after the three day abstention period, the cotinine in your urine is that of a passive smoker and thus it is unreliable as an indicator when underwriting for smokers. Even a sixty a day smoker could in theory pass themselves off as a non-smoker, provided they had the willpower to quit for a few days.

Q: You managed to misguide the insurance company! What now?

A: It is never a good idea to lie on your policy application. That much should be obvious. But what if you have managed to pass off misleading information as to your smoking habits; what then? Is it a home run, or should you still be wary?

Your insurance policy is a legally binding contract between you and the smokers' insurance provider and as such, the applicant should be as truthful as possible when submitting their application. It is often the case that a person applying for a joint life policy doesn't want to disclose the fact that they are a smoker to their partner, or they are a casual marijuana smoker and they worry about making this information public.

Smokers have been caught out after clearing their paramedical exam as a non-smoker, whilst the underwriting process is under way. They would simply submit your application with a smoker’s rate if it were the case that you were found to be lying. Some insurance companies follow up a screening with a phone call, placed at random, during which they will go over several key questions regarding your policy, with the specific intention of finding discrepancies in your application.

Q: What if an applicant dies after lying on an application?

A: If an applicant has been given the green light following their paramed exam, despite being a smoker, you may save initially, but what if something goes wrong and you die? Almost all term life policies include clauses which allow providers to investigate a death claim if it occurs within two years of your buying a policy.

Should it transpire that you are a smoker and you should have applied for a smoker's policy, your claim will be rescinded, or simply turned down flat. Some companies will pay out after the two year “incontestable clause” period, but these will subject you to far more stringent testing prior to allocating your policy.

There are certain things a company will check for after your death, should you have been insured for three years or more. Smoking and alcohol related diseases will be the first thing they check for, but something like an accident or an ‘act of god’ is a different matter. A company needs a very good reason not to honor a death claim in these circumstances. In some cases they only pay out the same amount as a smoker would get on their death claim. An individual thinking of lying to an insurer needs to ask themselves: “why do I need insurance and do I want to be cutting corners?”

Q: What if I'm discovered to have started smoking after applying?

A: Most people start smoking in their youth and progress as smokers into adulthood. Research has shown that it is 82% less likely for an adult to start smoking after the age of 24. Generally speaking, insurance companies aren’t bothered if you start to smoke after a policy term and will usually pay out in the event of a death. As long as you are straight with the provider on application, what you do after that isn’t taken into consideration and a claim is not jeopardized.

Q: What are the punishments for lying on an application?

A: Although it is a bad idea to lie on any insurance policy application, the repercussions are minor. At worst you will simply pay a higher premium. The insurer simply has to ascertain to the best of their abilities whether the information you give them is correct and how they are going to use it to present you with the correct plan at the fairest price. The term life insurance for smokers policy will gain more credibility over time and the likelihood of a good payout on a claim becomes stronger with each successive year.

*Editor's note: It is up to the individual to weigh up the benefits of hiding the truth or not when it comes to applying for life insurance for smokers. We all like to save money where we can, but remember that it is your family, not just yourself that you are compromising by submitting false information when buying term life insurance. Talk to Blake, our resident expert on smoking and life insurance if you have any questions with regards to any of the issues presented here, or wish to discuss any issue that we haven't covered. Our toll-free number is at the top of this page; we look forward to hearing from you.

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