Life Assurance & smoking - a few quick Q's

Kev64

I'm a 43yr old man, very light smoker (less than 5 a day), and wish to get a level term policy to provide for my wife if I die. Having seen that quotes for smokers are about twice that for non-smokers, I'm a bit confused. I am hoping to give up smoking completely within the next 6 months, but I don't want to leave my wife with no protection at all until I do stop smoking.

So... Should I be looking at taking out a very short term policy, say for the next 12 months, as a smoker, then getting a new policy for 20 years once I'm a whole year off the cigs ? (I've read Martin's guide about ex-smokers being considered non-smokers after 12 months) ...or do policies allow for you to declare yourself a non-smoker part way through the term, and then get the benefits associated with that (lower premium / revise the cover upwards) ?

Can you just cancel policies without penalty ? e.g, if I find a better deal in 12 months time or if I take out a 20 year policy now, as a smoker, then cancel it once I'm 12 months 'clean' and get another as a non-smoker ?

Lastly, not that I would ever consider risking something as important as my wife's payout, but how do they define 'smoker' - If I said I was a non-smoker and still had, say, a cigar on special occasions, would they try to squirm out of paying if they knew that ?

Any advice would be greatly appreciated.

Cheers,

Kev.

V_tricky

Hi,

This probably wont help you, but when I took out my life policy, I was asked whether I have smoked any tobacco product in the last five years!!!

the-chauffeur_2

Hey Kev

There's a whole bunch of questions.

The term of policy you go for will very much depend on how disciplined you are - both with regard to smoking and reviewing your insurance policies. If you can guarantee that you're going to stay off the fags for at least twelve months and can be sure that you'll be organised enough to review your finances and apply for more insurance in a years' time, go for a short term policy. If you can't be sure of both (let alone either) of those things, look for something longer term.

And don't forget, you're looking at buying insurance to protect your family against something nasty happening to you - but that something can happen at any time. Don't put buying insurance off just to save yourself a few quid until you can say you're a non-smoker - in all seriousness, you never know what'll happen between now and then.

As far as cancellation rights, it depends on how you buy the policy in the first place. If you apply direct to an insurer, you will probably be able to cancel at any time without penalty, but don't expect any advice as to whether the policy you're buying is suitable for you at the outset. If you want to discuss your finances with someone and work out the best arrangements for your circumstances, you're looking at financial advice - which will need paying for one way or another.

Some advisors work on commission; others charge fees. If you pay a fee and cancel early, you probably won't be charged any more, but don't expect anything back either. But if the advisor works on a commission basis and you cancel the plan, their commission will be 'clawed back' by the insurer - and you'll probably find that the advisor will be entitled to claim their lost commission back from you.

If you go down the advisor route, look for an independent advisor and make sure he/she fully understands what you want to do - and you may find you can work out a plan where they help you with the cancellation/reapplication process and so their fees would be covered anyway. Whatever you decide, make sure you read and understand all the options put to you - this goes double for any documents you're asked to sign.

Finally the definition of 'smoker' will depend on what insurer you apply to and the questions on the application form. Some only ask about cigarrettes (although these are now very rare). More often the question encompasses a range of, or all tobacco products - and yes, that would include chewing tobacco. As far as how much/many, it's simple - either you use, or you don't.

Again, it'll be down to the wording on the application form - but whatever you do, don't risk your dependents' well-being by not telling the whole truth. If you withhold information, the insurance company won't need to squirm out of paying - they'll be legally entitled not to. And if they send you for a saliva test when you apply (which are becoming more frequent) you really don't want it coming back positive if you've said you don't smoke. That sort of thing can, in some instances, put a black mark against your name and affect your ability to get insurance with any insurer.

Hope that helps

Retired_I.F.A.

All very true but dont take it as going for a short term policy now go for the cover you need and the term you need it for then look again at replacing it when off the fags. Taking out a 100k sum assured for 2 years expecting to do a 100k plan then for 18 could be a big mistake if your health changes non smoking or not unless it's convertable term assurance.

btw Smoke and be happy I say, hell 90% of us die of cancer or heart failure anyways. Premiums for smokers dont reflect the true mortality they just subsidise the non smoker rates. We smokers subsidise bloody eveything as you well know.

ManAtHome

Ah, but we get it all back at pension time...

Retired_I.F.A.

Only if we buy an annuity and when you compare annuities to drawdown well thats debatable but it's a no brainer fo me annuities are history.

ManAtHome

Dunno - I've been looking into 50/50 annuities and drawdawn (after the 25% tax-free of course) - don't you think it's a better idea to take half as annuity instead of leaving it in gilts/bonds (obviously impaired-life annuities make a big difference here).

Kev64

Many thanks for the replies everyone. Most helpful. Though, the last few above might have well been in Swahili for me ! I have no idea of what an 'annuity' is etc ! I thought that life assurance was simply this; you pay a monthly premium for x years. If you die during that time, they pay up whatever you're insured for. If you don't die, that's it - policy over, they have several thousands pounds in premiums over the years and keep it.

What's all this about getting it back at pension time ??

Retired_I.F.A.

Kev64... Sorry mate we've hijacked the thead. We are rabbiting on about pensions now.


ManAtHome...Put it like this, annuities are based on the current long term yield of gilts (they have to be to provide the g-tee) and mortality tables. Current rates for such gilts I believe are 4.75%. Add the effect of mortality drag (which is effectively the equivelent yield achieved by those dying young subsidising those who live beyond their life expectancy approx 1.5%) and your still looking at a yield under 7% today to which your going to be locked into for life by buying an annuity.

That 7% is not to be confused with the annuity rate, think of it as a deposit account fixed rate for life in which we all buy into and individually had calculated a regular withdrawel that'd strip out all our deposits if we all lived to be 80 or so (the normal life expectancy)
or put another way the annuiity rates (which is the withdrawel p/a as a percentage of the deposit) today are 7% plus a return of deposit.

So if eveyone retiring now bunged their pension pot into the 7% paying account overall there would be no winners or losers the account would always be adequate and never in surplus unless mortality expectations changed.

Now look at your own pension fund.. If you had been retiring 12 or so years ago when interest rates peaked gilts yielded more than twice what they do now at say 12% including mortality drag, and your pension fund growth over the years had also done well lets say it had yielded 18% how would you have felt had I come to you the day your pension plan matured at say 60 and said "Hey it's done okay, over the 20 years you've been investing in it you've got a yield equal to 18% p/a but now for the next 20 years more or less your going to get a fixed 12% wether you like it or not? Today your adviser might be saying it's yielded 13% or whatever and now your going to lock into 7% for life.

Either way investments made over a long period with a 50% or more equity content ending in the past or now have exceeded gilts even with an additional 2% and there is no reasonable expectation for them not to do so in the future. Of course there is a risk they wont but it's well worth it imo.

The biggest risk I see is the person who was told "near retirement switch to more secure funds thus locking in gains you've made over the years, as you wont want to see a possible drop just before retiring" Joe Public had that rammed down his thoat for donkeys years but it's nonsense with the advent of drawdown. As the guy who sees the advantages of drawdown and understands he should remain invested fo some years yet possibly till death is going to be quids in compared to the investor who invests in gilts / buys an annuity.

And that risk applies to you ManAtHome as your considering buying an annuity in part and investing in gilts via a drawdown plan.!!!

Definately not my cup of tea. I've been a staunch advocate of With Profits and Mutuals for years but they too are history now. I'll drawdown the maximum yearly in advance and invest in equities heavier than I've ever done. It'll either pay off handsomely or be at worse I think akin to an annuity.

Even if WWIII comes around and theres sod all left in my drawdown by the time I'm 80 and they come up with a pill that'll add 20 years to my life why should I be bothered sitting in a bath chair sucking soup through a straw.

Grab as much as you can as early as you can enjoy spending it is my motto.

As for ones health at retirement and impaired life annuities vesus drawdown Sums would need to be done which haven't concerned me personally but on the face of it a return of fund -35% tax I'd say outweighs a higher initial but shorter length annuity,

Sue-UU

Kev64 wrote: »

I am hoping to give up smoking completely within the next 6 months, but I don't want to leave my wife with no protection at all until I do stop smoking.

Hi Kev,

I really do hope you manage to quit smoking within the next 6 months as you're hoping. I reached 9 smoke-free years at Christmas and I'm so thrilled I finally quit in 1998. I thought I'd miss it like mad, but after about 3 weeks I only had fleeting cravings for a while and they passed so quickly that I could scarce believe it!!! Dr Chris Steele (on TV) always used to say the cravings passed so quickly but to be honest, I didn't believe it, but it really is true! Cut them down a couple a week from now until your intended day of quitting, by then you'll be down so low - what's to miss! Good luck Kev and anyone else who quits, it is SO worth it!!

Meanwhile as you're concerned about your wife, whatever happens about an Insurance Policy, why not open a savings account and put money in it for her each week, not to be touched for anything other than for use after your demise...

A couple of thoughts and a bit of help. Good luck Kev!

Sue.

Retired_I.F.A.

I bet Sue's one of the anti smoking brigade now, "dirty stinking habit, get away fom me and my space leave me to wallow in the fresh clean carbon monoxide filled streets drinking myself to an early grave with my newfound wealth and piling on the fat around my arteries as I eat all those bacon butties I couldn't taste before." :rotfl: