The value of not smoking
When it comes to life insurance, it pays to quit smoking — but do you realize just how much you could save?
By MSN Money partner on Wed, Nov 16, 2011 12:10 PM
This post comes from Aaron Crowe at partner site insurance.com.
If counseling, known health risks and being hassled by your family aren’t enough to get you to stop smoking during the Great American Smokeout, Nov. 17, then consider the high price of cigarettes and how quitting smoking can affect your life insurance quotes.
A smoker in New York, the state with the highest average retail price for a pack of cigarettes at $9.11 when all of the taxes are added, would save $3,325 a year by not buying a pack a day, according to pricing information from the Campaign for Tobacco-Free Kids. Along with possibly extending your life by quitting, you could buy a lot of life insurance each year at nonsmoker rates with that extra cash. To help quantify exactly how much, we researched some life insurance quotes.
Trading cigarettes for insurance
According to our research, a 40-year-old nonsmoking man with about $3,325 to spend on life insurance could buy a $2 million 10-year term life insurance policy for an annual premium of $3,269. A $1.1 million term life policy for 20 years would cost $3,145, and a $650,000, 30-year term life insurance policy would cost $3,280 per year.
The deals are even better for women, who can buy more coverage for the same premium or less. A 40-year-old woman could get a 10-year term policy at $2.25 million in coverage for $3,068 per year, a 20-year term at $1.4 million for $3,229, or a 30-year term policy at $850,000 in coverage for $3,273.
Putting cigarette money toward life insurance can also add up in Missouri, which has the cheapest price for a pack of cigarettes at $3.93. Not smoking a pack a day equates to $1,434 saved per year.
A 40-year-old man could buy an $850,000 10-year term policy for $1,434 per year, $450,000 in term life for $1,334, or $250,000 in a 30-year term for $1,273.
The woman of the same age in Missouri could buy $1 million in a 10-year term policy for $1,400 per year; $550,000 in a 20-year term for $1,330; or $350,000 in a 30-year term for $1,322 per year.
Those figures assume you’ll remain a nonsmoker and will continue banking the savings from not buying a pack of smokes each day, and that you’ll qualify for a nonsmoker rate from your life insurance company. The post continues below.
A lot of people want to quit smoking, with 68.8% of American adult smokers saying they want to quit and 52.4% saying they tried to quit within the past year, according to a new survey by the Centers for Disease Control and Prevention.
The savings for a nonsmoker are significant, with life insurance prices one-third of what a smoker pays, according to figures compiled by Glenn Daily, a life insurance consultant in New York City.
A 35-year-old preferred nonsmoker, for example, would pay $725 to $800 per year for a 20-year term life insurance policy with $500,000 worth of coverage, Daily found, while a preferred smoker would pay $1,965 to $2,600 per year for the same policy — more than three times as much. A “preferred” client is someone in very good health.
Actuarial tables used by insurance companies show a six-year lower life expectancy for that same 35-year-old smoker versus the nonsmoker, he said.
Smokers pay higher prices for whole life insurance, but not triple the price they pay for term insurance, Daily found. Still, it’s about 20% more.
Proving you quit
Smokers who have quit can ask their life insurance companies to lower the rates on policies they’ve already purchased, but it can require some work, says Deborah Becker, a State Farm agent in Wisconsin. Someone older than age 40 with a $1 million life insurance policy must repeat any health tests, such as blood, urine, and other medical tests, to determine that the person has quit smoking, Becker says.
For State Farm, the non-tobacco rate won’t go into effect until after the insured has been smoke-free for a year. Customers aren’t tested periodically for nicotine and aren’t asked to verify that they’re still nonsmokers after a life insurance policy takes effect, she says.
Lying about being a nonsmoker when you apply for a life insurance policy is a bad idea, Becker says, because if you die, and medical records show you smoked, the insurance claim could be denied.