Non-Smoking Benefits Beyond Your Health

Estate planners sometimes work with insurance consultants who will search the market for insurance companies and policies that can best address a particular client’s needs. This consultant evaluates the types of coverage, costs and other features of the available insurance policies, and then can coordinate purchase of the policies.

Kelly is employed by the insurance consultancy with whom my estate planning clients frequently work, and over the course of 30 months, she was able to help one particular client with his specific insurance situation.

March 2012. Joe, the owner of Success Co., purchased a $4 million universal life insurance policy for each of his two sons. Both sons work for the company and stand to inherit Success Co. after Joe’s death. In addition to serving as “key man” insurance, these two policies also afforded buy/sell protection for the company. (Key man insurance is simply life insurance on a key person in a business, usually the owner or other key employees without whom the business would undoubtedly sink.)

Because one of Joe’s sons, Sam, was an admitted smoker, purchasing a policy on him with a “preferred” underwriting classification was out of the question. Initially, the best offer Kelly could find for Sam was a “standard tobacco” policy with North Insurance Co. that carried an annual premium of $44,540.

Not satisfied with this high premium, Kelly instead submitted an application to South Insurance Co. under its Quit Smoking Incentive Program, which allowed Success Co. to pay a “standard nonsmoking” rate of $34,981 annually for as many as the first three years of Sam’s policy. If Sam did not quit smoking within the three years, the annual premium would skyrocket to $67,119 (the smoker rate) beginning with the fourth policy year. If Sam did manage to stop smoking within the three years and remained a nonsmoker, however, the company would be able to keep the $34,981 annual rate permanently.

March 2013. A year later, Kelly contacted Joe, who happily reported that Sam had quit smoking. She then arranged for the necessary medical tests, which proved that Sam had indeed quit, and reported this to the insurer.

May 2013. After reviewing the appropriate paperwork, South Insurance Co. removed the tobacco underwriting classification from the insurance policy on Sam and permanently applied the nonsmoker rate of $34,981. Kelly also explored the possibility of securing a “preferred nonsmoking” rate for Sam, but because at this point he was classified by the insurer as cigarette-free for only 15 months and was also significantly overweight, he would not be eligible for a preferred classification for about one more year. 

February 2014. The following year, Kelly once again contacted Joe. Good news: Not only had Sam remained tobacco-free, he had lost some weight. Kelly initiated an underwriting process with East Insurance Co., targeting a “preferred nonsmoker” premium of $24,688 annually. She sent all of Sam’s medical history and other required information to the insurance company, to be followed by the results of a new physical examination.

May 2014. Upon review off all necessary paperwork, East Insurance Co. offered its “standard nonsmoker” rate for Sam. Kelly thought she could do better and decided to continue the search for a better offer/rate class.

June 2014. A new medical diagnosis added a few flies to the ointment: Sam was reported to be suffering from sleep apnea and had experienced an incident of atrial fibrillation. The hope for a preferred status was history, but Kelly did manage to find a “standard nonsmoker” rate of $26,200 annually with West Insurance Co. for which she expected Sam to qualify.

September 2014. Thanks again to Kelly, a new $4 million universal life insurance policy with a $26,200 annual premium was implemented through West Insurance Co.

There are several lessons to be learned from this story:

1) If you are a smoker determined to quit smoking and interested in life insurance, find an insurance consultant who is willing to take the time to search the market and get you the “best” policy and to follow up with you periodically to re-evaluate your situation and needs. 

2) If you have other medical conditions (such as cancer or heart problems) that you are able to overcome (usually meaning five years of no symptoms), you may be able to qualify for lower insurance premiums on either individual or second-to-die policies.

3) If you already have life insurance policies and either are a smoker working on quitting smoking or have other medical conditions of which you are symptom-free, find an insurance agent willing to find you policies with comparable coverage at lower premiums.