Soft drugs, such as marijuana and hashish do not mix well with each other, nor with traditional life insurance.
And hard drugs, such as cocaine and heroin, make for an even tougher combination.
The considerations go beyond definitions of legality and extend to the insurers’ risk management processes, explains Lorne Marr, a seventeen-year veteran of financial services and founder of Markham-based LSM Insurance Ltd., a managing general agency.
The chances of obtaining traditional life insurance vary between soft drug users and hard drug users. They also vary between traditional life insurance and critical illness insurance on the one hand, and simplified issue life insurance and guaranteed issue life insurance on the other.
Simplified issue life insurance typically requires no medical tests, but up to 12 health questions; Sun Life Financial applications for traditional life insurance ask about usage of soft drugs within the past five years, but applications for simplified insurance include less stringent questions.
Also, Guaranteed issue plans often have no health questions or medical tests at all.
With traditional insurance, requirements also vary with the client’s age and coverage amount. Typically, insurers require some combination of saliva, blood and urine tests starting with clients in their mid-forties applying for coverage upwards of $100,000 or younger clients applying for $250,000 in coverage.
Understanding these differences has implications for the broker’s ability to obtain accurate information for a cover letter, while not offending a potential client.
In the soft drug category, a marijuana user currently smoking on a daily basis will likely face a decline, while a smoker lighting up three to five times weekly will face a rating. Someone lighting up occasionally at a Saturday night party or less frequently will pay the smoker’s premium, even if he or she does not smoke regular cigarettes. Most insurers ask about the individual’s previous five year history with these substances.
In a quirky kind of insurance industry bargain, a tobacco smoker who also smokes marijuana occasionally does not pay any more than a cigarette smoker who never touches the weed. In another irony, medically sanctioned use of marijuana may actually attract increased rates since it points to a serious medical ailment.
The hard stuff
In the hard drug category, an individual who has used these substances within the three to four years before application faces an automatic decline when applying for traditional life insurance, regardless of whether they are using it currently or even recently, Marr says. An insurer’s reluctance to insure a cocaine user is based on their significantly shortened life expectancy.
If the client used hard drugs more than three years before the application, he or she may face a rated offer. Depending on the insurer, that could mean an increase of between 100% to 300% of the regular premium. A former cocaine use who has not used the drug for six years or longer may get the standard rate although that is not assured. Sun Life for example, asks about hard drug use over the previous ten years and depending on the response and actual details, the company may or may not offer life insurance.
Handling this touchy topic increases the need for the broker to become a skilled questioner, eliciting sensitive information without offending the client. As an alternative, the broker can run through the questionnaire and then have the client read it, answer the questions and sign the form.
Coping with a hard drug user leaves the broker with few choices, amongst them opting for a simplified issue product which might provide up to $50,000 in coverage at about double the regular premium. Some insurers providing this product do not ask drug-related questions. However, some ask whether the applicant has previously been declined for other types of insurance. A broker working with a hard drug user should bypass applying for traditional life insurance and go directly to the simplified issue application, Marr suggests.
Another option available to the broker is a preliminary inquiry containing a general description of the client including his or her history of soft or hard drug use but without naming the client specifically and asking for a preliminary non-binding offer. The answer guides the broker as to whether to proceed with a more formal application, Marr explains.
As with other issues, client use of soft or hard drugs underscores the broker’s obligation to write as clear a cover letter before submission to the underwriter.
“You want them to be able to make as good a decision as possible,” he says. As with other issues, guidelines vary between insurers, between underwriters at insurance companies and even the insurer’s aggressiveness in getting new business.