Did you know that besides your health and medical history, life insurance premiums are also dependent on lifestyle activities? These activities, termed avocations, are hobbies that people engage in with their spare time. In the rest of this post, we will discuss what constitutes a dangerous avocation and how participating in it will affect your life insurance premiums.
Why dangerous avocations increase your life insurance premiums
When applying for life insurance, the underwriters want to know exactly who they will offer insurance to. In order for them to propose a premium for the applicant, they will gather all types of information that relates to his mortality rate. This includes health information such as his medical history, his family’s medical history and current health. It also includes lifestyle factors such as smoking status, driving habits and avocation. The worse the applicant’s health, the higher the premium to offset the increased risk. The same goes for avocations. Clearly, the more dangerous the avocation and the more frequent the applicant performs it, the higher the risk it poses on his life. Therefore, dangerous avocations are usually accompanied by higher premiums.
Some carriers in Canada allow you to choose between having a rated policy, or accepting an exclusion for the avocation. For example, if the applicant is involved in aviation in his spare time, he may accept an exclusion for aviation so that if he dies while flying an aircraft, the insurance company is off the hook for the payout. Some offer even more specific exclusions. For example, if the applicant is an avid backcountry skier, the exclusion only applies if death occurs when he ignores avalanche warnings in the area. So the carrier still has to pay a death benefit if death occurred while backcountry skiing without any avalanche warnings.
Disability insurance typically use exclusions instead of rating, such that the insured is covered for any disability except one that is caused by participating in a hazardous avocation excluded in the policy.
Types of avocations that are considered dangerous
The types of avocations that will draw the attention of the insurance company are listed in the questions asked in the application. If ‘Yes’ was answered, indicating that you participate in one or more of the avocations, you’ll have to fill out a detailed questionnaire relating to the avocations. The avocations that are regarded as hazardous, along with some sample questions include:
Aviation: Are you a student pilot? How many hours have you flown in the last two years? Purpose of flying? Details of the aircraft?
Ballooning: How many hours have you flown in the last two years? Do you have a pilot license?
Auto racing: Number of races in the past two years? Are you a professional racer? What kind of vehicle do you race? What is the maximum speed?
Scuba diving: What is the purpose of the dive? Where and how deep do you dive? Are you a certified diver?
Mountain/rock climbing: Average height of climb? Do you climb alone?
Skydiving/parachuting: Number of jumps in the past two years? Where do you jump? Are you a professional stunt jumper?
Heli-skiing, snowcat skiing, backcountry skiing, off trail skiing: Where do you ski? Do you carry a GPS? How many times per year do you participate?
This list is not exhaustive; some carriers deem other avocations such as bungee jumping as hazardous as well. Depending on your answers to these questions, the underwriter may decide to assign you a rated policy or provide an exclusion for the avocation. Your policy will have a greater chance of being issued at a standard rate if you rarely participate in the avocations and show the underwriter you are skilled and experienced by having appropriate licenses and completing training courses.
How you can reduce the premium
Just like how ratings for health conditions or smoking can be removed with evidence that you have improved your health or stopped smoking, ratings and exclusions for hazardous avocations can also be removed. You simply have to show that you have the proper licenses or reduced the frequency of the activity. Note that each carrier treats every avocation differently and the elimination of a rating or exclusion depends on the underwriter.
Another way to ensure that you are not offered a rated policy or a policy with the avocation excluded is to take up the avocation after being issued the policy. Of course, this can only be done if you haven’t already started participating in the hazardous avocation. Ratings and exclusions can only be applied at issue, and can’t be added after a policy is already in force. This is the main idea behind saving money by applying early before health and lifestyle changes force the underwriter to give you a rating.
The most important thing to remember is to never lie on the application. If you are caught, the insurance company retains the right to void the contract and refuse to pay a death benefit on grounds that insurance fraud was committed. This goes for any question on the application, not just ones relating to avocations.
Image courtesy of Sura Nualpradid / FreeDigitalPhotos.net