Surrenderers pay a lot for life insurance

Surrenderers pay a lot for life insurance

Ex-smokers see their cash burn as they pay for life and sickness insurance.

More than three million ex-smokers pay an estimated £316m extra for cover each year because they didn’t tell insurance companies they had quit.

Smokers who stay away from cigarettes and nicotine replacement products for 12 months or longer are usually eligible for non-smoking quotes. The potential savings from rearranging the cap are significant.

FLORIDA OBJECTIVE: The Williams family plans to visit Disney World thanks to savings

FLORIDA OBJECTIVE: The Williams family plans to visit Disney World thanks to savings

The average smoker pays £209.76 a year for life insurance cover, compared to £113.88 a year for a non-smoker, according to Sainsbury’s Life Assurance. The company researched a range of quotes across different ages and different amounts insured.

Non-smokers also get cheaper rates for critical illness insurance, which pays a lump sum if you succumb to a specific condition, and income protection that pays regular income if you can’t work due to illness (see table above). Private medical insurance is also cheaper. Insurance company Simplyhealth says non-smokers pay about 5 percent less for coverage.

Andrew Gray, product director at Sainsbury’s Life, says: “The financial gain of quitting smoking is often underestimated. Your life insurance premium can go down as you prove you’ve made efforts towards a healthier lifestyle.

More than 1.6 million people say they quit smoking in the past 12 months, according to Sainsbury’s research.

“Insurers may be happy to take your word for it that you no longer smoke,” says Matt Morris, senior policy advisor with protection broker LifeSearch. But some may order a cotinine test to check the effects of nicotine in your system.

Lying about whether you are a regular smoker can invalidate a future claim if tests against your medical records show otherwise.

The birth of her two-year-old daughter, Erin, helped convince David Williams it was time to give up. Daoud, 45, and his wife Sian, 30, also have a son, Kai, five.

“I’ve tried quitting many times before,” David says, “but there’s nothing like having a little family around you to motivate you.”

David, a housing officer, used to smoke 15 cigarettes a day, but stopped on January 1 of last year. I built myself for it. I was a little nervous the first few weeks but that quickly got through and I feel really good now.

After Erin was born, David arranged for a new life insurance through LifeSearch. As a smoker, he was paid £46.15 a month for £200,000 cover with L&G.

David, from Llanrost, Gwynedd, says: “The consultant told me that if I quit I should go back and see if I can get a better deal.”

Earlier this month he switched to a new non-smoking rate, paying £22.45 a month with Aviva.

“I put some money I don’t have to smoke to take the family to Walt Disney World in Orlando,” says David. Savings on insurance will help boost that even more.

If you decide to reorder life insurance, shop around and compare deals. Also re-evaluate your needs and whether insurance sums should go up to take into account your lifestyle.

Women may want to rearrange their cover quickly. Their preferential rates for life and health insurance may soon be banned by European equity law.

Don’t cancel any existing cover until the new policy is in effect and you’ve seen your first monthly payment leave your bank account.

There may be circumstances in which an ex-smoker is better off sticking to their current coverage, especially with critical illness plans.

“Over the years, the definition of medical conditions covered by insurers has been tightened in their critical illness policies,” Morris says. A well-established policy often has more generous terms and is more likely to pay.

“You should speak to an advisor who can check the terms of your policy and help you assess whether a lower monthly premium is a good trade-off for the insurance coverage you already have.”

Stop It: The Financial Benefits of Giving Up

The biggest financial gain from quitting smoking comes from the savings on buying cigarettes or tobacco.

Over 20 years, the money saved could translate to a total amount of over £50,000.

Supermarket cigarette prices vary from around £5.70 to £6.50 per pack of 20, depending on the brand. A regular smoker who buys five packs each week at a cost of £6 a pack will save £30 a week, £130 a month or £1560 a year.

In other words, quitting smoking is like giving yourself a raise of £188 a month before basic rate tax and National Insurance. These funds can help turn your money around.

“One option might be to use some of the money to help pay down the debt, starting with your most expensive debt first,” says Helen Kanolek, who runs HelenK Financial Advice in Wimborne, Dorset.

Those without short-term debt may choose to overpay the mortgage, lower interest costs and clear the outstanding balance earlier.

Alternatively, ex-smokers can use the extra income available to start saving long-term. An investment of £130 per month for ten years at an investment growth rate of five per cent per annum after fees yields a fund of £20,186. Over 20 years, the value of this fund would be £53,434.

“It’s important to enjoy some cash as a reward for giving up,” says Kanolek. Another idea could be to join an investment club and use some of the savings as a monthly subscription to learn about investing.

Subtract the numbers yourself at cost-of-smoking-calculator

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