For customers, life insurance is all about reducing risk: You get coverage so that your household is financially protected if you die, thereby removing a hazard out of your life, and providing everyone with a little peace of mind.
For an existence insurance carrier, however, life insurance is all about taking risks, as well as in this example the risk is that you simply. The insurer accepts which you may die throughout the term of coverage, which may cost them money. Actuaries do their finest to carry out a risk assessment and calculate the probability of your untimely demise, and charge you accordingly when it comes to insurance risk. (More prone to live = lower premiums.) When assessing your survival prospects, insurers consider a range of easily understood factors such as age and health, along with the murkier concept of whether you engage in “dangerous activities,” which you might have seen when trying to get a term life insurance coverage.
So what are those activities, and just how often do you have to engage in them to be considered “risky”? And how does that impact your coverage? Also, if you want to go skydiving and you want reasonably priced life insurance coverage, what in the event you do?
We put these questions to the head of underwriting solutions at Haven Life. This is what we found out.
What do insurers mean by “risky”?
Across the insurance industry there is broad agreement that particular activities are hazardous. They include (but are not limited to) diving, rock climbing, skydiving and vehicle racing, but each company assesses risk just a little differently. Insurers make use of a mix of statistics that affect the entire population (what percentage of rock climbers die each year, for example) as well as their specific company's experience of past claims. If your insurer makes lots of payouts related to stock automobile accidents, they're likely to charge racers more for coverage.
Lists of dangerous activities are updated as trends change: Two decades ago, no insurance company might have inquired about parkour (which could involve jumping between buildings), but now some do. At Haven Life, application questions have an “avocation” (hobby) section, that is evaluated every few years. A team of risk specialists keeps track of new trends in hazardous sports, as well as in the at large. Recently, Haven Life added skeleton and luge to the bobsledding category (yep, there was already a bobsledding category – blame Cool Runnings). Haven Life also updated language around rock climbing (to clarify it's primarily worried about outdoor climbing) and large game hunting (to explain it's primarily worried about trophy hunting).
What must you know about risky habits and hobbies?
For insurers, a key consideration with any risky hobby is when often a prospective customer practices it, and also at what level. When you make an application for coverage, you will be asked for those who have participated in certain activities in the past three years, or plan to do them in the next two. Underwriters take the specific details into consideration. If you are into motorcycle racing, they'll consider what kind of bike you have, what kind of racing you need to do and just how often. If you're a professional scuba diver who spends half his waking hours in deep water, you'll pay more for life insurance since there are potential risks associated with this hobby. If, on the other hand, you occasionally dive with a buddy in relatively shallow water while on vacation, that probably will not affect your insurance premium. That's one good reason why honesty is essential when you make an application for life insurance coverage: It might help you save money.
The other reason is the fact that, frankly, if you are less than honest, there's a chance you'll get caught. (After you have died, which is awkward.) Consider for example mountain climbing. If you die while climbing, your life insurer will check whether you climbed regularly, whenever you started doing the work, and whether you told the insurer about it. If you were a serious climber whenever you got your policy, and also you told your insurer about this, there is no problem (apart from the fact that you're, well, dead). If, however, your insurer discovers that you simply didn't tell them about your habit of scaling mountains without a rope, or that you didn't mention you had a visit up El Capitan planned whenever you signed up for your policy, there could be problems with your payout.
The above is especially true during the “contestability period” – the time of your time right after you get your policy (often the first couple of years). If you die during this time, an existence insurance provider will, as a matter of course, determine should you made any false claims when registering for your policy.
It's important to note that none of the restricts your life or obliges you to know everything about what you'll do in the future, although it seems like it might. For example, if someone reports limited participation inside a dangerous hobby on their application, then dies participating at riskier levels (for example somebody that reported they dived only to 100ft after which died in a dive accident below 100ft), a unique investigations team could be involved to evaluate the claim. When they discovered that the client have been truthful regarding their past participation, there'd be no grounds for misrepresentation and also the claim would be paid. Only when they discovered that the customer had misrepresented their participation prior to the policy moving in force would the claim likely not be paid.
How could my hobbies affect my premiums?
The extent that participation in a dangerous activity might improve your premiums differs from individual to individual, however the way you'll be charged is rather standard. If you're, say, an enthusiastic heliskiier, an insurer might just provide you with a higher overall premium than your less adventurous friends, or they could add what's called a flat extra – one more charge associated with the risky hobby. If a customer has a flat extra, many insurance companies will consider removing it in the future if the customer has quit the harmful activity not less than two years and it has no plans to return to it later on.
When do I need to notify my insurer about risky activities?
Life insurance coverage is about safeguarding your family's future, and when underwriters consider your participation in dangerous activities, also they are looking ahead: They're mainly worried about what you'll do going forward. If you accustomed to spend each weekend base jumping however, you gave up years ago whenever you had kids, that won't affect your premium, so long as your time and effort hurling yourself off cliffs really is in the past.
But what if you had no intends to do anything dangerous whenever you subscribed to your policy, but then you subsequently decide to be a professional skydiver? (Hey – it might happen). If so, perhaps surprisingly, your coverage likely won't be impacted, even throughout the contestability period, when all claims are automatically investigated. Should you die doing a hazardous activity along with a life insurance company checks the claim, the investigation will aim to establish whether you should have known and disclosed that you simply planned to take part in a risky hobby at the time your policy had been underwritten. Quite simply, should you have had no aim of going near an airplane when you signed up for life insurance but, a year later, you rewatched Top Gun and went get your pilot's license, your coverage wouldn't be affected.
So the end result is this: So far as your life insurance carrier is worried, you should do what you like, now and in the future; you need to be straight with them when trying to get your policy so that any insurance risk is taken into account. This way, you can engage in all your hobbies while knowing that the financial risk for your family has been taken care of as much as possible.