Risky Business

All work and no play make Jack a dull boy, according to the old saying. However, if you play the wrong way, play can make a big dent in your pocketbook.  Life insurance companies and, until a full implementation of Obamacare, health insurers offering individual health policies see a lot of risk related implications in your choice of work or personal hobbies.  It isn’t that insurance companies pass any moral judgments on what you do with your spare time; it’s just that some of your choices can put you at greater risk for death or accident and those risks get accounted for in the amount of premium that you pay.

A recent US News article looked into some of the more adventurous pastimes and concluded that your participation can cost you real money.  For example, they note the experience of a young executive who had left a position where he had company life insurance and applied for individual life. He applied for life insurance from a company that had a listed rate of $20 a month for $350,000 of term life insurance and indicated in his application that his hobbies included rock climbing and mountain climbing.  His application was accepted, but his rated premium was $180 a month. 

From an underwriting perspective there is a huge difference between underwriting an individual life insurance policy or health insurance policy and underwriting a group. When underwriting a group, you can generally assume that with sufficient numbers and sufficient time, claims experience will be reasonably predictable. At the individual level, you have to look carefully at how an individual’s behaviors may affect their risk.  If you are a scuba diver, for instance, you could be the most careful, best trained and equipped diver in history, but from the underwriter’s perspective you are a member of a group that experience about 1 death for every 200,000 dives.  Statistically speaking, you have an increased risk of death. 

Some other hobbies can also impact your premiums – and in some cases even your ability to purchase individual insurance.  Motorcycle riding is a popular but, dangerous hobby with higher fatality rates from accidents than motor vehicle accidents in general; recreational boating is another popular area that may raise your risk and premiums.  The biggest hits come, though, when you leave solid ground.  As in the story of the rock climbing executive, the hobbies your insurer hates include mountain climbing, sky-diving, hang gliding and being a civilian pilot.  

It is not just your hobbies that can affect your premiums, but your occupation as well.  Group life insurance through your job provides the opportunity to underwrite a whole professional group, but in applying for an individual policy, your job could have underwriting implications.  Miners, lumbermen, and offshore fisherman may be rated at increased risk.  Construction workers who work high steel or heavy construction are at increased risk; home construction and general construction are more likely not.  Private and commercial pilots will typically be rated as high risk while most police officers and firefighters will not be considered high risk unless they are involved in special risk category – like a bomb squad.

In some cases it is possible to seek an exclusion from a special category of risk and reduce your premiums.  For example, a life insurance could be written to exclude coverage of death from activities related to hang gliding.  That may allow coverage to be underwritten or the premium reduced.

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