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As states again weigh marijuana legalization, what's the impact on life insurance?

Life Insurance and Annuities
by Lisa Jiang
As states again weigh marijuana legalization, what's the impact on life insurance?
As states again weigh marijuana legalization, what's the impact on life insurance?

Over the past several years, there has been a trend at the state level of voters taking up the question of marijuana legalization during major elections. As of late October, the vast majority of states (33 in all) had some form of legalized marijuana use on the books, mostly for medicinal purposes. Of those states, 1 in 3 also allowed it for recreational purposes.

With the 2020 federal elections just days away, voters in five states — Arizona, Mississippi, Montana, New Jersey and South Dakota — will cast ballots for questions of legalizing marijuana within their borders, in some form, according to CNN Business. Interestingly, it is only in Mississippi where medicinal-only legalization is up for the vote; all others would see states allow recreational use if ballot measures pass. In South Dakota, Measure 26 would legalize the former, and Amendment A to that proposal would legalize the latter simultaneously.

In all cases, there are potentially hundreds of millions of dollars in annual sales on the line, and that brings with it significant tax revenue for the states. Leafly notes there is significant polling data to suggest that most of these ballot measures will pass successfully, though to what extent they do so is obviously up to voters.

Marijuana is likely to be legalized in a handful of states on Nov. 2.Marijuana is likely to be legalized in a handful of states on Nov. 2.

The impact on life insurance for consumers
With many states now having marijuana legalization in place for years, there's not much need to dig into what-ifs about how these laws are enacted, or even how sales tend to go. However, experts note that what people in any state that passes these laws need to realize is that marijuana possession is still technically a federal crime, and that it can significantly affect people's eligibility and costs for life insurance.

Lifehacker noted that an insurer certainly won't report applicants to federal authorities for disclosing marijuana use during the application process, and that means it's not something people should lie about when trying to obtain coverage. The reason why is simple: Life insurers are trying to assess risk and, technically, it can be dangerous to use marijuana in some ways, such as before getting behind the wheel of a car, or in the long term, potentially if they smoke it habitually.

As such, life insurance costs do tend to be higher in these cases. However, most underwriters will likely grant coverage to admitted marijuana users, albeit with other rules sometimes attached as well (such as age restrictions).

What insurers need to know
As with anything else in the life insurance assessment game, companies simply need to understand how legalized (and thus, likely more widespread) marijuana use will affect mortality. According to the Arizona Republic, there are plenty of studies that have been conducted in states with recreational legalization, all of which show a minimal impact on what many might have as their most immediate fear: traffic deaths.

For instance, one study in California found that after non-medical sales were legalized in 2017, traffic deaths in the Golden State actually fell 8.3% over the following year. Likewise, the American Journal of Public Health published a 2017 study that found "no significant association" between marijuana-related driver impairment and increased traffic fatalities in Colorado and Washington in the three years after recreational use was legalized there. This, of course, does not mean there is no correlation or that driving under the influence of marijuana is by any means safe, but as far as the widespread use might affect life insurers en masse, the risk seems to be minimal.

What's the difference?
Industry standards for life insurance costs can vary based on many factors, but a recent Forbes article shows that, by and large, insurers are more cautious about covering habitual marijuana users even when they buy low-cost policies. For a man or woman who's 30 years old, even occasional marijuana use — two or fewer times per month — is typically seen as grounds for a 22-23% increase in coverage costs. For infrequent users who are 40, that increase will rise to averages of 23-29%.

However, numbers climb sharply for regular use (more than twice a month). Among 30-year-old men, the premium hike averaged 47%, and 34% for women of the same age. At age 40, those numbers spike to 70% and 58%, respectively.

Moreover, even if marijuana is being used for medicinal purposes, life insurers will likely consider these issues significantly, depending on what the drug is being used to treat. Hinging on on the severity of the medical issue (marijuana is often prescribed to chemotherapy patients, for example), that can have an impact not only on costs, but eligibility.

At this point, life insurers operating in multiple states likely have strong game plans for how they will proceed when it comes to rolling out potential changes to their policy offerings in states that legalize marijuana use of any kind. However, with the roster of states allowing it seemingly destined to keep growing for the foreseeable future, it's never a bad idea to revisit.



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