Life Insurance Non-Smoker Rates

Posted: Sat Jan 12, 2008 12:38 am Post Subject:

Insurance Maze- that's a good question! And the answer is.....NO!
And here's why...

For the sake of discussion, we'll use your example as the case-in-point here. You said that at the time of issuance the carrier issued at a non-smoker premium rate as the insured had not smoked for two years. This would, indeed, get you the non-smoker rate with most carriers.

The policy was issued, and then the insured started smoking once again after the policy was issued and had been in force for roughly 2 months. Specifically, the insurer would not normally be allowed to increase the rates after issue (in the absence of fraud and misrepresentation on the app) due to increased risk (now a smoker).

Another example would be occupations and avocations (hobbies), which also receive underwriting scrutiny. Let's say that at the time of application, your applicant was a mild-mannered accountant. No problems health-wise, either. The policy is issued. A few days/months/years later, the insured decides to go into the underwater demolition business, and leaves their non-risky accountant job and gets a job blowing things up under water. Slightly different risk, would you agree?

The insurer cannot do ANYTHING to affect the rate of the contract in force. Now, if the policy lapses and the insured wants to reinstate the lapsed contract, he will be subject to re-underwriting based on his current situation and could easily see a rate increase or a declination due to the increased risk presented by the insured based on his new job.

The opposite is NOT true, however. For example, let's say that when the insured bought the policy, he WAS a smoker, and the policy is issued with a smoker rating. A couple of years later, he quits smoking. I would advise the insured to request that he be placed into a non-smoker rate. Most insurers will require that you quit for a minimum of one year and submit to a nicotine test prior to changing the rate, but this is definitely do-able.

In closing, the insured is under NO obligation in a life insurance contract to tell the agent or carrier anything regarding change of risk after issuance. Lastly, if the insured wants to increase the face amount of the policy, they will be underwritten for that increase.

I hope this gives you some insight.

InsTeacher 8)

Posted: Sat Jan 12, 2008 11:32 am Post Subject:

Let me throw some more grease on this fire... :roll:

Given your same scenerio Maze, and the insured took the Ins Teachers advise ( :wink: ) and did not inform their carrier that they had picked up the habit again...Two or three years later the insured dies of a tabaco related illness (clearly tabaco related no way out of it for sake of this question)...can the insurer now deny the claim for mis-rep? (claiming non-smoker status on the app).....hmmmmmmmmmmmm?

Posted: Sat Jan 12, 2008 01:12 pm Post Subject: Life Insurance Non-Smoker Rates

Thanks InsTeacher and Lori for your input into this subject.

I will admit that this is a situation where I already knew the answer.

This was kind of a "What Would You Do?" situation and I knew when I posted this there would be very few comments and here's why:

The average consumer understands very little about insurance, especially life insurance. Most of us shop for the "cheapest" premium for a specified dollar amount and that is what we most often buy.

Life insurance, unlike most other forms of insurance, is a "unilateral" contract, in which only the insurance company has the responsibility to do anything. As long as the insured (or premium payor) pays the premium, the insurance company has to pay off. InsTeacher, you are absolutely right, once the life insurance policy is issued, that's it, the policyholder doesn't have to notify the company about anything or do anything, except pay the premium.

If anything occurs in our lives that could possibly bring about a "reduction" in our insurance premium, the average person would jump on it.

But if anything occurs to cause an "increase" in our insurance premium or sometimes cancellation, the average person immediately jumps the agent or the company about how they are being "ripped off". They go to their friends, neighbors, co-workers, church members and everyone else they know and tell them about their "dislike" for XYZ Insurance Company. What they don't tell them is that their son has just gotten two speeding tickets or a citation for driving under the influence.

So, most people would contact their agent or life insurance company if their policy was issued at a "Smoker" rate and they have now stopped smoking, to get a lower premium.
But, probably no one would feel any responsibility to contact the insurance company if the situation were reversed.

I have found that no matter what happens in an insurance situation, whether it be life insurance, auto, home or commercial, that causes a "negative" impact on the policyholder - blame is ALWAYS placed on the agent or company.

Hi Lori,

Given your same scenerio Maze, and the insured took the Ins Teachers advise ( ) and did not inform their carrier that they had picked up the habit again...Two or three years later the insured dies of a tabaco related illness (clearly tabaco related no way out of it for sake of this question)...can the insurer now deny the claim for mis-rep? (claiming non-smoker status on the app).....hmmmmmmmmmmmm?

Posted: Sat Jan 12, 2008 01:50 pm Post Subject:

Before you jump in on a second-hand conversation about a "bad insurance agent", know both sides.

Posted: Sat Jan 12, 2008 06:12 pm Post Subject:

Nice follow-up Insurance Maze.

I have to agree in the final assessment of the scenario above that you are responsible to represent your statements truthfully on the application.

As long as you follow that guideline, I think they would pay the claim. Although in researching your smoking-related illness that led to death, how could the insurance company really determine the exact date you started smoking, after the application was completed?

Any thoughts?

Posted: Sat Jan 12, 2008 06:54 pm Post Subject:

Hi Hadley,

Although in researching your smoking-related illness that led to death, how could the insurance company really determine the exact date you started smoking, after the application was completed?

Posted: Mon Jan 14, 2008 05:45 pm Post Subject:

Just a note on the incontestable period. Insurance Maze brought up a great point, and this policy provision comes into play with this scenario.

All states have rules and law that govern insurance policies. In a life insurance contract, the insurer only has 2 years to "contest" the validity of a life insurance policy based on misrepresentations and fraud in the application for insurance.

People "misrepresent" all the time. As an example- let's say that when the insurance company asked the applicant when the last time he saw his doctor was, and the applicant replied "December 12, 2007." When the carrier checks this info, the carrier finds out that the doctor's appointment was actually December 13th, and not December 12 as the applicant had stated.

Big Deal. So he was off by one day. While this is a misrepresentation, it's not a "material misrepresentation." There's a big difference between immaterial and material misreps. Anyone can be off by a period of time when trying to recall dates- memories erode with time. The big problem are those "material" misreps. This is a misrep that, if the insurer had known the correct information, would have caused the carrier to alter the way they issued the policy (if they would even issue at all).

For comparison: let's say that the insured stated that he saw the doctor on 12/12/07 and as above, it was really on 12/13/07. Big deal- the insurer doesn't care about that. When asked why he saw the doctor in the first place, let's say the applicant said "to get a physical." Then the app is going to ask what the results of the doctor's visit were, and the applicant stated "I'm fine." In reality, it was for a physical, but because of tests the doctor performed, the day after the doctor's visit, the insured was in the hospital for a quadruple bypass heart surgery.

Slight difference in info, would you say? By omitting and concealing the heart surgery info, the applicant was actually fraudulent, but that's another thread.

Now, the insurer only has TWO YEARS to act on this material misrep. If the insured gets past that 2-year mark, and the insurance company has simply continued to send the premium notices and the insured has paid them, and then he dies? The insurer will have to pay the death claim unless the death were otherwise excluded.

The same applies with the smoking example posed by Insurance Maze. If the insured truly did not smoke at the time of app, we have no issues. If the insured DID smoke and misrepresented this on the app and died within the first two years after the effective date of coverage, the insurer has the right to "contest" the payment of the death benefit based on the misrepped app info, as this information was "material to the insurer's decision to insure."

Does this make sense? Hope so! Lastly, the incontestability provision does not apply to certain riders and certain benefits. Ask if you have questions on this, and I would be happy to respond!

InsTeacher 8)

Posted: Mon Jan 14, 2008 07:29 pm Post Subject:

Well, we seem to have turned this entire topic around from "What Would You Do?" to "Contestibility of Life Insurance", but that's OK, this is a very important issue.

This is one important point I try to present to people who ask whether they should buy life insurance online. This practice could be more "risky" now that we have all these advertisements like - "$500,000 Life Insurance - No Medical Exam".

No company will insure your life for $500,000 without knowing all about your medical/health history.

What happens if you make an "honest" error online? Let's say a question on the online insurance application wants to know your last LDL cholesterol level and you answer 130. You really didn't know, you just took a shot at it and guessed.

It is important to understand that LDL cholesterol is the bad kind and "less" is better.

The insurance company issued your life insurance policy on 01/14/2007.
On 05/30/2007, you suffered a massive heart attack and died. You had planned for this tragic event by purchasing the $500,000 in life insurance.

Since your death occurred within the "contestible period" (2 years) of this life insurance policy, the company investigates your medical history. A record of your last doctor's visit incidates that your LDL cholesterol level was 170 NOT 130, like you originally stated on the life insurance application.

From 130 to 170, doesn't sound like much does it? Well, LDL cholesterol level of 100 - 129 is considered "optimal". LDL level of 130 - 159 is considered to be a "borderline" risk for heart disease, but LDL level of 160 or more is considered "high risk".

So had you really known what your correct cholesterol level was when you completed the "online" application, the insurance company, more than likely would not have issued the policy.

So, an "honest" mistake on a life insurance application has now cost your family $500,000.

Posted: Tue Jan 15, 2008 01:17 pm Post Subject:

All states have rules and law that govern insurance policies. In a life insurance contract, the insurer only has 2 years to "contest" the validity of a life insurance policy based on misrepresentations and fraud in the application for insurance.

Posted: Tue Jan 15, 2008 03:00 pm Post Subject:

Well there you go something else new I learned today! You mean they only have two years for mis-rep...? amazing, NOT at all like P&C that misrep can kind of 'crop up' when a claim does huh? I'm quite surprised by this guys!