20 October 2015
Why do insurers think e-cigarettes are dangerous?
It's no secret that smoking tobacco isn't great for your health. But when it comes to the world of insurance, it's always been a little more complicated. When you're young, and buy your first life insurance policy, being a smoker can be costly. In fact, it's likely to double your premiums. Same goes for any other kind of protection insurance - like critical illness cover or income protection.
But if you make it all the way to retirement as a smoker, it finally starts to pay back in your favour. Smokers can buy a better retirement income than their clean living peers.
As always, these prices are driven by statistics. Life insurance is more costly as a smoker because you're more likely to die while your policy's in force. And for exactly the same reason, pension companies will offer you more in retirement - because they expect to be paying it to you for fewer years than someone who doesn't smoke.
The safe alternative to smoking?
But what about so-called "vaping" and electronic cigarettes? These have been the key to many heavy smokers giving up over the past few years - and a few months back, a UK government study even suggested it is 95% less harmful than smoking regular cigarettes.
So in the face of broadly positive press for e-cigarettes, why is it that the insurance industry has decided that they are just as bad for you as the real thing? What do they know that we don't?
Take out a life insurance policy today and you'll almost certainly be asked if you've "smoked any tobacco products over the past 12 months (including e-cigarettes)". It's a yes or no answer - and if you answer yes, your premium will be twice as expensive.
If the life insurers were able to base their decision in statistics - this decision may be more defensible. But given that they don't even ask people to specify whether they vape or smoke - they don't even have the data. Not to mention the fact that e-cigarettes have only been around for about a decade - which isn't enough time to compile any meaningful results.
It's hard to see this as anything other than a cynical ploy to pocket a few extra quid.
This is not the only anomaly to be found in a life insurance application form. Insurers routinely ask questions about alcohol consumption, family health history, and even your waist line. These are fairly intrusive questions - but are perhaps fair enough in terms of the clear links between these factors and an individual's mortality. But insurers also ask if you've ever suffered from "stress". Anyone who answers no to that question is surely not being honest with themselves. But anyone who answers yes may find their premium pushed up - as they're shoved into the mental health problems bucket.
It's time for the regulator to take a look at the way insurers set their prices - not just in life insurance, but in all areas of insurance. There are too many areas where the evidence is simply not clear enough to justify the way that insurers choose to treat prospective or even existing customers. One of my greatest bugbears is an insurer's right to put your car insurance premium up if you're involved in an accident that wasn't your fault. Regardless of whether the statistics justify their reasoning, it's simply not fair play.