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Former smokers overpaying for life insurance

An increasing number of smokers in South Africa have considered quitting the habit as a result of more stringent legislation governing smoking in public places as well as the increasing cost. However, if these same people have actually given up smoking up to one or two years ago they may be overpaying for their life insurance by failing to inform their provider of the change in their status.

A South African survey commissioned by Nicorette last year found that 66% of smokers were considering quitting as a result of increased legislation after amendments to the Tobacco Control Act barred smoking in partially enclosed areas and cars in which there were small children.

According to Gavin Came, Chairman of the Financial Planning Committee at the Financial Intermediaries Association of Southern Africa (FIA), if a consumer has stopped both smoking and using nicotine-replacement products for over 12 months, they should qualify for a reduction in the cost of their life insurance.

However, a report by Sainsbury's Life Insurance in the UK recently found that more than three million former smokers are overpaying for their life cover to the tune of £316m. The report showed the average smoker pays £209.76 a year for life cover, compared with £113.88 a year for a non-smoker.

Came says the same is also true in South Africa, with a smoker likely to pay a higher cost than a non-smoker due to the associated health risks. “The actual premium a smoker would be required to pay is dependent on a number of factors, including the number of cigarettes they smoke each day. On average, however, a smoker is likely to pay between 25% and 120% more for life insurance than a non-smoker.”

“Smokers pay a far higher price for their life cover, as well as other ancillary benefits. In the current environment, with costs such as electricity, fuel and food constantly increasing, it is vital that former smokers take the time to advise their broker or life insurer of a change in their circumstances as it could make a significant impact on their finances.”

Came says it is also important for consumers to evaluate other changes they may have made to their lifestyle such as regular exercise as this can have a positive impact on the cost of financial services products. “Consumers who make an active decision to lead a healthier lifestyle should speak to their financial adviser to determine exactly how this can benefit them financially. For example, a heavy drinker will also likely pay higher premiums due to the health risks this would pose. However, if they have stopped drinking for a sustained period of time they should be able to review any loadings or exclusions.”

Came warns, however, that while companies are likely to reduce the cost of premiums for clients who have quit smoking it is essential that they do not lie to their insurer to receive preferential rates.

Came says it is also important for consumers to remember that if they start smoking again after informing their insurer otherwise, they must update their details to ensure that in no way the insurer would be able to repudiate a potential claim based on non-disclosure.

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