Do life insurers need to rethink their approach to smokers?

For many years now, being a smoker who wanted to get life insurance coverage has been a dicey proposition. On the one hand, many insurers may reject these people for the lowest premiums out of hand, meaning that even if they do get approval for coverage, their costs are often quite high. And while it's easy to see the life insurer's side of things in these situations, that may still leave some people who might desperately want life insurance a little marginalized.

One of the big issues here is that, while the prevalence of smoking is certainly not at the levels it was even a few decades ago, millions of Americans still do it regularly. And because many of those people are adults, they might also be in the market for life insurance coverage, but been frustrated with the process of buying it. Some may have even thought about quitting smoking, both for health reasons and because of how much it might improve their chances of getting the most affordable life insurance. But the problem they might face there is that their coverage could be expensive for some time after that.

What's the issue?
In fact, even people who have quit smoking are still considered smokers by many life insurance companies for up to a year after they've kicked the habit, according to a report from the consumer financial advice site Nerdwallet. Moreover, it's important to note that how each company handles former smokers is different; some will allow people to use products designed to wean them off cigarettes – such as nicotine gum or lozenges – while others will not.

A good rule of thumb for smokers who are considering trying to get life insurance is that the longer they wait after they've quit, the more likely they'll be to qualify for non-smoker premiums, the report said. The fewer tobacco products involved, the more affordable their coverage is likely to be going forward.

Life insurance policyholders who quit smoking may save hundreds of dollars annually on their coverage.

Another thing to consider
Meanwhile, even people who don't smoke – and those who never have – are not always going to be offered the same rates, the report said. Even e-cigarettes, which have become all the rage in the last few years among many people who have tried to quit the more harmful side of smoking, may end up impacting their life insurance premiums. Meanwhile, some other insurers will incentivize smokers to quit by giving them low rates for a while as a means of showing them the benefits, before boosting the cost again if they haven't kicked the habit.

And because the savings in these cases can often be substantial, the cash value of that incentive might be clear immediately, the report said. In some cases, going from non-smoker rates to smoker rates can increase annual premiums almost five times over.

Life insurers may therefore want to do a little more to show smokers who might be disenchanted by the premiums they've been offered before how affordable coverage can be if they quit. That might provide them the impetus to do so, because the financial benefits – for both consumer and insurer – can go a long way.