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Paying a premium: Insurance costs higher for smokers than non-smokers

In an effort to reduce cigarette smoking, the U.S. Food and Drug Administration has unveiled nine graphic health warnings -- including one image of a smoke-damaged lung and another of a cancer-ravaged mouth -- that will appear on cigarette packs, cartons and ads in the United States by September 2012.

"These labels are frank, honest and powerful depictions of the health risks of smoking, and they will help encourage smokers to quit and prevent children from smoking,” U.S. Health and Human Services Secretary Kathleen Sebelius says.

If the eye-opening cigarette labeling weren't enough of an incentive to kick the habit, consider this: Insurers and employers hit smokers and other tobacco users with higher premiums. For health, life and home insurance, lighting up can cost you dearly.

Here's an example: An Oklahoma smoker might be costing himself more than $3,200 in higher annual premiums for health, life and home coverage compared with a non-smoker, according to the Oklahoma Insurance Department. The calculation is for a 44-year-old man.

insurance smokers

Tobacco use is the leading cause of premature and preventable death in the United States, responsible for 443,000 deaths each year, according to the federal Centers for Disease Control and Prevention. Tobacco use costs the U.S. economy nearly $200 billion every year in medical costs and lost productivity. Roughly 46 million American men and women smoke cigarettes.

Health insurance

Karen Bender, a spokeswoman for the American Academy of Actuaries, says surcharges for smokers vary greatly for group health insurance and individual health insurance. When a smoker buys health insurance on his own, he likely will face a surcharge. Within an insurance group (such as company employees), it depends on the size of the group and how the risk is spread.

"The whole concept is about sharing and pooling the risk. All healthy members are subsidizing all other members who have higher than average costs. And it's not limited to smoking -- it could be obesity or other lifestyle or medical characteristics," Bender says.

Under the federal health care reform law, employers in 2014 can start assessing a health insurance surcharge of up to 50 percent against employees who smoke.

A 2010 survey by Hewitt Associates showed 64 percent of large U.S. employers were imposing health insurance penalties against employees who smoke or were planning to do so. Among companies that already impose a health insurance surcharge for smoking employees are Gannett, General Mills and PepsiCo.

At least nine states allow lower health insurance premiums for state government employees who don't smoke and higher premiums for state employees who do, according to the National Conference of State Legislatures. South Carolina, for instance, assesses a $25 monthly surcharge for state employees and their family members who smoke or chew tobacco. In Georgia, it's $80 a month for a smoking state employee and $50 for a smoking spouse.

Opponents of such surcharges argue that they constitute workplace discrimination.

Life insurance

All other things being equal, a smoker typically pays 30 percent to 50 percent more for life insurance than a non-smoker, says Steven Spiro, owner of The Excelsior Group, an insurance agency in Valley Stream, N.Y. That's because smokers have a far greater risk of premature death, so the life insurance company will have to pay death benefits sooner. Studies have shown that smokers can die up to 10 years earlier than non-smokers.

"The bottom line is that people who smoke are much greater risks for insurance companies. Life insurance has the most dramatic effect because the risk of paying sooner is greater," Spiro says.

Whole life insurance policies often are sold with a waiver-of-premium benefit. This addition to the policy covers premium payments if the policyholder becomes disabled. Because smokers are more likely to become disabled as the result of smoking-related illnesses, insurance companies charge smokers substantially more for this waiver.

Home insurance

George Bondon, owner of Bondon Insurance Agency in Silver Spring, Md., says smoking also can affect premiums for home insurance, as smoking boosts the risk of fires. Instead of directly penalizing smokers, he says, some home insurance companies offer a non-smoking discount. However, State Farm, the country's No. 1 home insurer, and Allstate, the country's No. 2 home insurer, don't offer discounts for non-smokers.

According to the National Fire Protection Association, smoking materials such as cigarettes, cigars and pipes are the leading cause of fire deaths in the United States.

“If a homeowner smokes, it is really another type of (insurance) exposure,” Bondon says.

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