Life insurance with no medical exam implies, basically, a continuous long-term financial relationship between the policyholder and the insurer. Smoking, however, can influence not only the term of the agreement but also the compensation rate. Let’s figure out why.
Life insurance is a type of insurance that protects the property interests of the policyholder related to his life and death. The amount of insurance compensation received by the insured or his authorized representative directly depends not only on the number of accumulated premiums but also on the insurance rate.
The insurance rate is the payment of the insurance premium from each unit of the insured amount, taking into account the volume of insurance and the nature of the insurance risk. The tariff system includes a range of insurance tariff rates, a system of discounts, and a system of coefficients. The tariff is calculated using actuarial calculations. The main principle of building the tariff can be considered the equivalence of the aspect ratio. That is, the insurance tariff should correspond as much as possible to the probability of an insured event.
Most insurance companies demand their clients to go through the medical exams to check their health conditions and decide their premiums. In most cases, the examination is included in the cost of the policy. However, there exists another type of insurance – a non-exam one. When you apply for this type of policy, it will not be necessary for you to go through the physical examination. However, it doesn’t mean that you won’t be obligated to answer several important questions about your lifestyle, profession, and bad habits.
Smoking and Its Effect on Insurance Rates
According to the WHO, one person dies every six seconds from diseases caused by smoking in the world, and every year a bad habit kills up to seven million people. Tobacco smoke contains more than 4 thousand different substances, of which over 200 are dangerous to the human body. These substances include nicotine, tobacco tar, carbon monoxide.
At the time of smoking, due to nicotine, a person’s blood vessels expand, and then they sharply narrow. As a result, prolonged smoking causes persistent vasoconstriction, which, in turn, leads to a whole series of health problems such as thrombus formation, the development of atherosclerosis, peripheral vascular disease. All these diseases affect the heart and brain, skin, teeth, hair, bones, and even vision, accelerating the aging process in the body.
Tobacco tar is an irritant to the respiratory tract and lungs. A strong carcinogen suppresses antitumor immunity, damages DNA cells, which, as a result, leads to cancer. Radioactive substances and heavy metals accumulate in the bronchi, lungs, liver, and kidneys. Smoking has inevitably a negative impact on all organs of the human being. So, how does this devastating habit affect the insurance rate?
In order to find the answer to this question, you need to understand how the insurance rate is formulated.
Insurance Rate Calculation
The upper limit of the price of insurance service is determined using two market factors: the amount of demand and the value of the bank interest on deposits. But also, the size and structure of the insurance portfolio (the total number of risks taken for insurance) affect the amount of the premium. It can be concluded that one of the bases for determining the insurance rate is the degree of risk.
Data for risk assessment can be obtained through questionnaires. As a rule, when contacting an insurance company regarding the implementation of life insurance, a client fills out a questionnaire consisting of questions that are not most obvious at first glance, which ultimately will help the insurer to obtain the complete information about clients. The questionnaire includes both standard questions about health, including the smallest injuries, the number of cigarettes per day, the tendency to be overweight, the love of skydiving, and riding a motorcycle.
Most of the tricky questions are based on pure statistics, what is the mortality rate for boxers, scuba divers, dentists, etc. For each person, a special tariff rate is created, which is based on the sum of the probabilities of death or injury, taking into account all his hobbies, activities, and, of course, bad habits.
Assessment of Risks
Risk assessment methods include the following:
- Statistical methods. They are based on assessing the probability of an insured event on the basis of a study on the frequency with which this event occurs.
- Probabilistic and statistical methods. This method is an analysis of additional indirect data and logical reasoning.
- Theoretical and probabilistic methods. The construction of a mathematical model of the studied risk and a theoretical assessment of its parameters are applied.
- Expert methods. When studying objects with uncertain parameters and unexplored properties, one has to use the experience and knowledge of experts.
The decision on the premium is made by the underwriting, which is the analysis of the risks offered for insurance, making decisions on the insurance of the proposed risk, and setting the tariff rate and insurance conditions corresponding to the risk.
As you can see, insurance rate calculation is basically the assessment of risks. It means companies you resort to for the life insurance policy will take into account every detail they can find out about your life. If you are a smoker, it will not be surprising that your premium will be higher then for non-smoking people.