Life Insurance Havens
Life Insurance Havens Cigar smokers can still get affordable coverage—even when they own up to their passion
From the Print Edition:
Michael Jordan, July/August 2005
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Questions, background checks, examinations, hot lamps, intrigue, evasion. For some cigar smokers, a life insurance application review can seem like a CIA interrogation. But as it turns out, honesty may be the best policy.
"They know everything already or will find out," the owner of a telecommunications business says about the ominous intelligence of insurance companies, which is why he was honest with his life insurance company. But it worked out. He came clean on his one-to-three-cigar-per-week routine and still received the best rate on his coverage.
A 38-year-old who is married with two children, the business owner needs to have a good policy, but not at the expense of a good life. "Cigars as a lifestyle are acceptable provided you do other things to offset it," says the businessman, who in addition to being an avid cigar smoker regularly runs and works out. He says this existence led to a favorable rating from Mass Mutual. His annual premium is well below that of what a cigarette smoker would pay.
An official at Mass Mutual, however, expressed surprise that the business owner would have been given a nonsmoker rate, given the frequency of his cigar smoking. Approval of such a policy "clearly does not line up with our underwriting practice," says vice president and chief underwriter Robert Haran.
According to the Consumer Federation of America, the average smoker rate on life insurance is twice as high as that of a nonsmoker. With those numbers, some cigar smokers are tempted to stretch the truth, and do. But lying may be unnecessary. The insurance classification of "smoker" does not always mean "cigar smoker," and just because you smoke cigars doesn't automatically mean you'll get the highest possible rates.
"Anyone who is paying cigarette smoker rates because they use a cigar, pipe or chewing tobacco is paying too much... They can save a fortune," says Byron Udell, owner and chief executive officer of Accuquote, a personalized online insurance consulting company. Udell says that the savings are out there, but people do not always research the alternatives.
Udell, a self-proclaimed insurance aficionado, has been in the insurance business for 18 years and sees a niche market in cigar smokers looking for ample savings on premiums without the burden and potential pitfalls of perjury.
Cross-referencing his company database of hundreds of life insurance providers, Udell says the lowest rate on a 45-year-old smoker's $500,000 20-year life insurance policy is $2,730 per year, while the low for nonsmokers, who don't use tobacco at all, is $770. According to Accuquote's database, if you are a cigar smoker (and don't smoke cigarettes), you could be paying only $770 a year, provided you're smoking at a rate of about one cigar a month. A "heavy cigar smoker" would pay approximately $1,085 per year—still much cheaper than that of a cigarette smoker, yet more than a once-a-month smoker. Of course, factors such as age, lifestyle and medical history also play a huge part in insurance pricing.
Wayne Lesser, a 60-year-old attorney from San Francisco, says he was able to obtain a favorable rate on a policy from U.S. Financial Life Insurance Co. despite admitting that he smoked cigars. "In the universe of insurance companies, there is not a set market for guys like me that smoke cigars," says Lesser. "You find that cigarette and cigar smokers are lumped in the same [category]." Looking for insurance about four years ago, Lesser saw a plan advertised in a magazine with nonsmoker rates for cigar smokers, so he signed up. However, two years later when he decided to amend his plan, those rates were no longer available and the broker he spoke with was baffled by those initial rates.
We put the question to our Cigar Aficionado Online forum members, many of whom have had mixed experiences with insurers. "They told me that if I sign an affidavit that I had completely quit cigars, and had for two years, only then would they give me nonsmoker rates," said stapletonj. "I lied and said I didn't smoke," said jacket88. "In fact, I lied about a ton of things on that application." "I have American Income Life," said prccaptain, "and they told me cigar smoking doesn't count." (Respondents were referenced by their online user names to protect their identities.)
According to a Cigar Aficionado Online poll of cigar smokers last year, 33 percent said they have lied or stretched the truth to life insurers, while 44 percent said they have not. The other 23 percent did not respond, or did not own a life insurance policy.
Robert Flood of Allen J. Flood Insurance Companies Inc., a property, casualty, life, accident and health insurance agency based in Larchmont, New York, said that companies provide insurance to cigar smokers and other tobacco users under a nonsmoker rate because doing so can be mutually beneficial to the company and the client. "It's an aggressive stance by the company saying, 'We think we can write enough policies and generate enough premium that we can accept the increase in our claims payments as a result of cigar smoking.' "
It is not only the larger insurance companies that can take on the potential additional financial burden. "Allowing cigar smokers under a nonsmoker rate could make sense for a smaller company in order to grab a greater percentage of the market share," says Flood. The same could also be true of a larger company.
"It has become a more important niche in the market," agrees Mark Sahagian, a regional brokerage director for Prudential Financial, who is based in Gurnee, Illinois. "More people are smoking cigars, and better cigars. [Our policies] allow cigar smokers to be honest about their cigar smoking."
According to Sahagian, Prudential offers five different plans, grouping nonsmokers and smokers according to their degree of tobacco use. To obtain the least expensive rates overall, you need to be in excellent health, have an unblemished family medical history and a tame lifestyle, and have steered clear of all tobacco for five years. (Sahagian estimates that those earning Prudential's best rating account for only 20 percent of its applicants.) Most cigar smokers fall under the insurer's second- and third-level plans and are considered "nonsmokers"— people who have smoked cigars but not cigarettes for at least the past 12 months. Differentiating between these two groups depends on the frequency of smoking, as well as a whole list of other factors, including blood pressure, family medical history, personal medical history, occupation, residence, etc. Cigarette smokers go directly into the two "smoker" categories and are subject to the same additional factors.
The bottom line is that reasonable insurance rates are available to cigar smokers "If someone is a 'celebratory smoker' [someone who smokes cigars on special occasions]—smoking ten to twelve cigars a year—they would get the Preferred Plus Plan, the second degree of coverage behind the highest," says Sahagian. More frequent cigar smokers would likely be placed in the company's third-tier plan.
Mass Mutual also offers a favorable life insurance plan for people who smoke more than one cigar a month. Applicants can qualify for the insurer's nonsmoker rate as long as they don't smoke more than 24 cigars a year, and test negative for nicotine, according to Haran. He said the company had previously limited smokers to 12 a year, but changed the policy several years ago because "we didn't feel there was any extra mortality."
State Farm Insurance, one of the largest life insurance providers in the United States, has more stringent guidelines when defining smokers and nonsmokers, a policy that is more typical in the current market. State Farm, according to spokeswoman Ana Compain-Romero, draws the line at one cigar per month to be eligible for a nonsmoker rate. Any more than that, and an applicant would most likely be lumped in with cigarette smokers and subject to a higher rate than nonsmokers.
Northwestern Mutual Life Insurance Co., the largest provider of individual life insurance in the United States, used to be more cigar-friendly, but now shares a policy similar to State Farm's. "We still make an exception for cigar smokers," says Kurt Carbon, a spokesman for Northwestern Mutual. "Those that smoke 12 or fewer cigars per year are still eligible to get nonsmoker policy rates; 13 or more get smoker rates."
According to a 1995 article in Cigar Aficionado, about 11 cigar-friendly life insurance providers offered non-cigarette-smoker rates to regular cigar smokers. Today, that list has been cut in half. State Farm, Northwestern Mutual, Metropolitan Life Insurance Co., Mutual of Omaha and Guardian Life Insurance Co., which were all mentioned in the 1995 article, no longer make the distinction, which now means it's tougher for cigar smokers to obtain nonsmoker rates.
The reason, Compain-Romero says, stems from the cigar boom of the mid to late 1990s. "There was an upsurge, and it became very hip and popular to smoke stogies like your grandfather or father did, and our underwriters were faced with looking at that and defining some terms," she says.
Carbon notes that there are no real specifics to point to regarding Northwestern's decision to make its policy more restrictive. "We decided that there were some additional risks in the use of tobacco products, whether it be chew or pipes or cigars," he says. Carbon does not cite one particular study as the cause, but attributes the accumulation of different studies over the past few years reporting increased risk that led to the policy change.
For years before blood and urine tests became routine, many people would play the odds, said Udell, falsely reporting themselves as nonsmokers. If the insurance company ever found out, they or their surviving relatives would have to make up the difference between what was not paid on the smoker's insurance. Once companies caught on, they started screening for nicotine; many smokers promptly said they were cigar smokers to account for the nicotine in their systems, and were thereby excused from cigarette smoker rates. Finally, catching on to this, insurance companies amended their plans and grouped all smokers into one big, fuming heap.
Companies now use cotinine screening to determine evidence of tobacco use. According to the Centers for Disease Control and Prevention, "cotinine, a major metabolite of nicotine, is currently regarded as the best biomarker in active smokers and in nonsmokers. Cotinine persists longer in the body than nicotine and can be measured in serum, urine, saliva and hair."
At State Farm, any trace of nicotine in the body may land life insurance applicants—regardless of smoking frequency—in the smoker category. Such evidence, combined with verbal data, is enough to classify an applicant as a smoker or a nonsmoker, Compain-Romero says.
Northwestern, Carbon says, will still consider an applicant a nonsmoker as long as tests don't indicate more than 0.5 micrograms of tobacco. He says this allows for secondhand smoke and naturally-occurring nicotine in the environment.
Carbon says there are two big problems when it comes to the issue of tobacco use. "There are no really good studies in clinical medicine about when the negative effects of tobacco really begin...and no good way to measure the amount of tobacco an individual uses," he says. The cotinine tests are an improvement over past screening methods, but can sometimes yield questionable results.
"A person who is a light smoker could test after a day of not smoking as lightly as a person who just had their one cigar per year," says Carbon. He says if a person smokes one cigar the day before an exam, he will test positive and most likely be grouped with smokers regardless of his yearly usage.
Still, despite all the testing and policy making, there is a loophole in most policies that doesn't discriminate between cigarettes and cigars, which is referred to as a two-year "incontestable clause." This means that a company can challenge and deny a claim within two years from the date the policy was initiated. For instance, if an applicant were to lie about cigarette smoking, then die of lung cancer within two years of having initiated the life insurance policy, the insurance company could nullify the claim or demand that the difference in premiums be paid. After two years, however, the company would have to pay the claim.
"After ten years or so, linking your death to smoking is less important to the [insurance companies] than not reneging on a death claim," according to a report from Insure.com.
Once you do the research and find the right company for you, Udell says, "as long as you don't lie, the companies will always pay."
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