With home and auto insurance, your rates and contract can change every year. If your basement floods or you become an Uber driver, you’ll pay more and could even lose your coverage. Rates and conditions can also change for insurance through your employer or an association to which you belong.
Personally owned life insurance is different. Your rates are set at the time you buy and are usually guaranteed. Your coverage generally can’t be reduced, changed, or cancelled. If you start smoking afterwards, your rates won’t go up. If you start driving race cars, your rates won’t go up either. To be sure, check the contract. If you don’t know where to look, ask your advisor or the insurance company. The best time to find out is before you buy.
Life insurance offers strong guarantees because the death benefit is for the beneficiary, not you. Suppose your beneficiaries are your spouse and children. Should they be deprived of the death benefit because you started smoking later? If benefits aren’t paid, we as a society have the financial burden of supporting the uninsured.
If you’re planning to engage in risky behaviour at the time you apply for insurance, be sure to answer the questions in the application correctly. If you don’t, your contract could get voided. That defeats the purpose of buying the coverage.
For instance, the application often asks where you’re planning to travel in the next 12 months and why. You may not have booked your trip or have definite plans when you apply. What happens if you book shortly after you’re insured and die at the destination? The insurance company will likely investigate before paying the claim and look for signs that you withheld relevant information. Do you want to put your beneficiaries in the position of arguing your case?
Say you’re thinking of taking up an activity like scuba diving. Getting more life insurance first may be prudent. The insurance company might offer coverage with a higher premium or exclude benefits for the activity. Regardless, it’s important to be honest with your intent.
The bottom line
If you’re not sure about the consequences of changes in your health or activities on your life insurance, investigate before you buy. Your advisor can ask on your behalf without identifying you. You may find a company that’s more accommodating. The big risk to your beneficiaries is if they think you’re covered but you’re not.
- Are Your Life Insurance Premiums Guaranteed?
- Whole Life vs. Universal Life Insurance
- A Primer on the Different Types of Life Insurance