Stay on the wagon

The social habits and lifestyle of clients can often prove vital to the underwriting process of life assurance and critical illness (CI) applications. While an element of mystery can surround the underwriting process, it is essential advisers ensure they remain well informed and fully aware of the impact social habits can have on their client's application for protection.

Habits such as smoking, alcohol consumption and drug use are all examined individually by the underwriter. In general, there are tolerance levels in place which will enable clients who fall below these guidelines to obtain cover under standard rates before any medical evidence is required by the underwriting team. However, for applicants recovering from addiction and substance abuse, underwriting protection policies can prove more complex.

Stub it out

While tolerance levels for current smokers can range between 20 to 35 cigarettes a day depending on the insurer, the underwriting process for reformed smokers is pretty constant across the board.

If an applicant used to smoke 40 cigarettes a day, is healthy and has not smoked for five years, it is likely the insurer will never find out about their former habit. As a result, they would be offered a standard non-smoker rate as Tony Jupp, chief underwriter at Norwich Union, explains.

'As a general rule, the question that most insurers ask in terms of smoking is: 'have you used tobacco or a tobacco-related product in the last 12 months?' If the question relates to the past one or two years and someone who used to smoke 40 a day gave up successfully four years ago, the insurer would never know unless, of course, there was a history of smoking-related health issues, such as chronic bronchitis,' he says.

Jupp adds that any health-related problems resulting from a previous smoking habit are likely to be disclosed in another part of the proposal form.

'If someone used to smoke, it is not held against them forever and a day,' he says. 'But if a smoking habit caused the applicant to have a medical problem, then it is more than likely it will be addressed in another part of the life assurance or critical illness form.'

If a former smoker has a condition such as chronic bronchitis, resulting from a previous smoking habit, they will pay a non-smoker rate plus an extra premium that is condition assessed on both life assurance and CI policies.

'The rate varies depending on the nature of the condition and the applicant, but there would be a non-smoker base rate' says Matt Rann, head of underwriting and claims at Scottish Equitable Protect.

Half empty or half full?

Alcohol consumption is a difficult matter for underwriters to evaluate and there remains the problem of distinguishing between alcohol abuse and having the occasional alcoholic drink, as an applicant's consumption levels are not usually recorded.

While there are also tolerance levels for alcohol consumption in place, there is usually no proof other than the applicant's word to support the information supplied unless the applicant has health problems arising from heavy drinking.

It is likely insurers will obtain a General Practitioner's Report if an applicant with a history of alcohol abuse applies for life or CI cover.

'If someone has a history of drinking in excess of the consumption guidelines, then a General Practitioner's Report is essential to determine whether alcohol has led to other health problems,' says Jupp.

'This is usually an incremental process, but in the main, it will usually examine liver functionality to see if the liver has been affected by alcohol consumption. However, loadings vary depending on age and the term of the policy. With alcohol, there is a need to tailor the loading to individual circumstances.'

Reformed alcoholics looking to get life assurance cover can expect to endure a postponement period of around two years and a premium loading over a five-year period thereafter. After five years of cover, it is likely standard rates will apply, provided the applicant has made a full recovery and has not experienced any adverse effects as a result of their addiction.

For CI cover, the applicant is likely to be declined for five years after and full medical records will be required. Stuart Johnson, chief underwriter at Bright Grey, explains: 'With alcohol abuse, health problems associated with the liver and heart tend to arise. We would require an up-to-date liver functionality test. If there was a problem with the workings of the liver, it is likely an applicant would be declined critical illness cover.'

In class A recovery

Although insurers claim the number of former drug abusers asking for life and CI cover is minimal, there are still procedures in place to cater for applicants who are recovering from a drug habit.

Different classifications, methods of usage and possible conditions resulting from drug abuse are taken into account when underwriting life and CI policies for reformed drug abusers.

Like cigarette and alcohol addiction, there are a number of diseases and illnesses associated with each type of drug. As a result, a reformed addict's medical records are likely to be sought before any decision can be reached.

'The whole process is complicated,' says Rann. 'If someone used to be addicted to drugs, a number of things need examining. Not only do we look at what drugs they abused heavily, but the possible reasons for their addiction. Underwriters may also look for a history of mental illness, and the social background that could have led to their addiction.'

Class A drugs such as heroin and cocaine have greater implications for the underwriter than class B or C narcotics, explains Johnson:

'Underwriting for former drug addicts does vary on classification, but it also depends on whether the applicant used to take a cocktail of substances. More often than not, that would be the case.'

While it is rare an insurer will ask an applicant to take a drug-screening test, health issues arising from drug abuse do need to be taken into consideration.

'If you look at heroin abuse,' says Rann, 'we need to ask how the drug was taken. If the applicant took the drug intravenously, there is the chance they shared needles. This in turn raises the possibility they may have contracted HIV or Hepatitis B or C.'

It is unlikely an applicant with any conditions resulting from their former drug addiction will be eligible for life assurance or CI cover. However, it is possible someone with a history of drug abuse who is in full health will be able to get cover with a loading.

Jupp explains: 'If someone has been addicted to drugs and has come away from the experience without any damage to themselves and it has been established they are firmly set on the road to recovery, then there are options available,' he says.

On a general basis, a reformed cocaine or heroin abuser with no conditions will have to be clean for anything between two to three years before they are eligible for life cover. After that, it is likely a monetary loading of £7 for every £1,000 sum assured will be imposed for a period of four to five years on a life assurance plan. After seven years of being clean, the applicant may be entitled to standard rates provided there has not been a relapse or any impaired damage to the person's health following the addiction.

An applicant applying for CI protection will be required to be clean for five to six years before any cover is offered. A loading of +100% will then be imposed for at least two years, after which a smaller loading or standard rate may apply.

Generally, for most types of drugs, there will be a postponement period of at least two years and a loading of three to four years on both life and CI cover. For class C drugs like cannabis, the long-term effects of the drug may be examined if the applicant was a heavy user. However, casual cannabis use does not tend to impede on life or CI cover and standard rates are usually offered to both current and former users provided they do not suffer from any other conditions.

There are a number of factors taken into consideration during the underwriting process for life assurance and CI policies for reformed drug users. Smoking, alcohol and other drug abuse can all affect the way an applicant is viewed and in most cases, each person will be examined individually and their risk assessed accordingly.

It is vital, however, underwriters take all elements of a person's former habit into account before making a final decision.