Income protection for smokers

What is income protection insurance?

If you work for a living, relying on your weekly or monthly wage to fund your lifestyle, then your income is one of your most important assets. If illness or injury makes it impossible for you to work then, however much or little financial support you’ll get from your employer or the state, it simply may not be enough. Income protection insurance provides a safety net that can give you the extra help you need for as long as you need it. It covers both physical and mental health issues.

That’s the good news. The bad news is that the cost and availability of income protection insurance depends on the state of your health when you apply. Any illness or injury you’re suffering at the time is unlikely to be covered and this can include any aspect of your current lifestyle that could contribute to illness or injury. Extreme sport is one. Smoking is another.

Why smoking is an insurance headache

Like excessive drinking or drug-taking, smoking is one of the lifestyle choices that sets the alarm bells ringing for insurance companies. If you apply for any kind of insurance that covers you rather than your possessions, you can’t avoid being asked if you smoke. It’s essential to the underwriting process, or risk assessment.

UK smoking rates have been steadily falling. In 1974, 45% of adults were smokers, a figure that seems inconceivable today. By 2011, 20.2% of adults smoked and by 2023 this was down to 11.9%, but that means there are still more than 6 million smokers in the UK.

According to BUPA, smoking can reduce your life expectancy by 10 years and the longer you smoke, the bigger the reduction. It’s hardly surprising that when you ask an insurance company to cover you for anything that relates to your health – such as income protection, life or health insurance – the risks of smoking assume huge significance.

Insurers are not only concerned with the reduction in life expectancy. Smoking is known to cause or contribute to many illnesses that, while not fatal, can result in a disproportionate number of claims. Illnesses caused by smoking aren’t limited to cancer. They include circulatory and respiratory diseases, heart attacks and strokes.

How does income protection insurance work?

You take out a policy while you’re fit and working. If you later become ill or get injured and have to take an extended break from your job, you can make a claim on your insurance and receive a proportion of your salary in monthly payments until you’re able to start working again.

Policies typically offer you 50%-70% of your normal wage – the maximum with Eleos is 65% or £2,000 per month. After basic rate tax and National Insurance your take-home pay is about 72%, so the 65% figure takes you fairly close to your regular income.

Once your claim is approved, you’ll receive payments for as long as you can’t work, up to the limit of your chosen benefit period, which, with Eleos, is 1 or 2 years.

Why do you need income protection?

Unless you have substantial savings you don’t mind leaning on, or other sources of income, financial support during illness can be limited. Your employer’s legal obligation is limited to giving you statutory sick pay of £118.75 a week. Some employers choose to be more generous but the extra money they give you may not last for very long. If you’re self-employed you have no employer to pay you, so apart from your own resources you’re left with Employment and Support Allowance of just £92.05 a week.

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Income protection insurance for smokers

As a smoker, you can’t fail to be aware of the risks. But what is the definition of smoker for insurance purposes? Most insurers ask if you have smoked in the past 12 or 24 months. They don’t generally ask how much you smoke or for how long you have smoked. If your answer to this one question is ‘yes’ then you are considered a smoker.

What about other forms of smoking and nicotine use?

If you smoke cigarettes or pipes you’re a smoker. But what about other substances and substitutes?

Cannabis

This would fall under drug use, so the question is effectively irrelevant. Mind you, the tobacco content of a joint puts you into both categories.

E-cigarettes and vaping

Does vaping count as smoking for insurance? If you use alternatives that contain any amount of nicotine, you’re also classed as a smoker. Nicotine-free vaping liquids are another matter: some insurers won’t make a distinction between the two but others will. Depending on the insurer you could be classed as either a smoker or a non-smoker.

Patches and tablets

If you use nicotine replacements in an attempt to stop smoking, an insurer is likely to class you as a smoker because it’s the use of nicotine that’s conclusive.

Can you get income protection if you’re a smoker?

The short answer is yes. For a smoker income protection insurance is just as important as for everyone else. Because they want to protect as many people as possible, most insurers won’t treat smoking as a reason for an automatic refusal, although some will. If your application is approved you are likely to have personal exclusions added to your policy.

What are exclusions?

These are restrictions placed on your cover. General exclusions applicable to everyone are things like health conditions you have at the time you apply, dangerous hobbies and hazardous jobs.

Personal exclusions arise from the information you give during the underwriting process. They’re designed to relieve the insurer of responsibility for certain high-risk features of your lifestyle, thereby keeping your premiums affordable.

There are three possible outcomes to any application for income protection insurance:

1.     Accepted

2.    Accepted with exclusions and/or higher premiums

3.    Declined

As a smoker, you’re unlikely to get the first outcome, but it’s quite possible to get the second rather than the third.

Should you disclose your smoking habit?

How do insurance companies know if you smoke? They rely on the honesty of applicants during the underwriting process. However, that doesn’t mean you can simply withhold information and give inaccurate answers. In some circumstances, when you make a claim the insurer may ask for supplementary information, even going as far as requesting access to your medical records. If their investigations turn up evidence that you are an undeclared smoker they may disallow your claim and even cancel your policy. In extreme cases they may take legal action for fraud. Even if you escape detection your greater insurance risk can ultimately increase premiums for all policyholders. Full and accurate disclosure is in everyone’s interests

Keeping the cost of your insurance down

Affordability is one of the biggest considerations in choosing insurance and fortunately you don’t have to accept the quote that’s given to you. There are several ways of keeping your costs down.

Giving up

The most obvious action you can take is to quit smoking, of course. This won’t immediately change your status from smoker to non-smoker but after being smoke-free for a specified period – possible a year or two – an insurer may be prepared to reclassify you. This could reduce your monthly premium payments.

Waiting period

This is the length of time you decide you’re able to wait between stopping work and receiving the first of your monthly benefit payments. It helps you align your insurance benefits with any sick pay you receive from elsewhere and the longer the period you choose the lower your premiums will be. 

Benefit period

This is the maximum time for which you can be paid under a single claim. If you choose a 1-year period your premiums will be lower than if you opt for a 2-year period.

Critical illness insurance

If you still can’t find a policy you can afford, you could consider taking out critical illness insurance instead. This pays a lump sum on diagnosis of any one of several specified serious illnesses, rather than monthly payments. It can be cheaper, but, as a smoker, your premiums will probably still be higher and certain smoking-related illnesses may still be excluded.