Higher insurance costs deter smokers..

Thanks to higher premiums, smokers may be insuring themselves for less than they should be — likely a costly mistake.

Smokers don’t insure their lives for as much as non-smokers do, causing potential financial problems for their families.

The gap between the amounts of life insurance coverage taken out by smokers compared to non-smokers means that those who light up regularly are at higher risk of leaving their loved ones exposed to financial hardship, should the worst happen.

According to the most recent Stats Canada data, 5.8 million Canadians smoke — roughly 20 per cent of the population.

However, with only two-thirds of Canadian households having any life insurance at all, it’s clear that many regular smokers are under-insured, a worrying statistic considering the number of smoking-related deaths that occur every year.

At least 19 per cent of all deaths among Canadians are related to smoking, according to recent estimates. And it’s not just their health that smokers are risking. Being addicted to cigarettes can also have a serious impact on one’s finances — in particular, the cost of life insurance.

It's a sobering reality, but smokers are more likely to have ongoing health problems and a shorter lifespan than non-smokers, making them more of an insurance risk. And their premiums reflect this, forcing many to cut back on coverage as a result.

For instance, a 35-year-old smoker would face double the premium for a 10-year term policy compared to a non-smoker.

There’s little wiggle room when it comes to determining just who is a smoker. Most insurers don’t care whether you smoke one cigarette or two packs a day — you’re still a smoker. Some also don’t make a distinction between smoking cigarettes, cigars or a pipe.

Generally, insurance companies take people at their word, which may tempt some potential buyers to claim falsely that they’ve given up smoking. However, lying about whether or not you smoke to try and lower your premiums could be a costly error.

If, in the event of your death, the insurer were to discover that you were a smoker when you applied, your beneficiaries would end up with nothing. What’s more, you’d have paid premiums for nothing.

With insurance fraud on the rise, life insurance companies are growing a bit more cautious here. Smokers who claim they’ve kicked the habit might face a urine test to see if they’re lying. At the moment, however, such tests are more likely to be administered when insurers are already demanding a medical examination.

There is good news for smokers looking to quit, however. If you were to take out a policy now and then subsequently break the habit, you could then request to have it changed to a non-smoker policy.

Some insurers will even meet you halfway, offering you incentives to stop smoking when you take out a policy.

Were you to quit smoking for 12 consecutive months within the first two policy years, some companies will then offer you the lower non-smoker rate you would have otherwise qualified for when the policy was issued.

In some cases, they’ll actually refund a portion of the premiums for that period as well.

If you’re planning to quit and feel more comfortable with a permanent policy, you may want to consider a term policy with a conversion privilege.

This feature guarantees you the right to trade in your term policy and get a permanent policy, at healthy rates. You can subsequently make that exchange when you stop smoking.

The longer you wait, the higher the premiums go, however, since they’ll be based on current rates and your current age.