We would fill out an avocation questionnaire regarding the additional risk the life insurance company would face in the processing of your application. No need to rush an application without getting all of the pieces of your puzzle together first. I would use my marketing resources or reach out to underwriters directly and see who would look at your risky activity most favorably. Are we looking at an extra premium charge and how much or a policy exclusion for the risky activity?
Life insurance actuaries go to great lengths to arrive at pricing for their three most-common policy categories — standard, preferred and super-preferred. These rates are based on mortality, company experience and partly on practical knowledge about ever-changing habits and lifestyles.
By their very nature, life insurance rates reflect the life expectancy of Joe and Jane Average, not your applicant involved in Triple-X extreme activities, which are difficult to handicap. The very novelty that gives you the adrenaline rush can give a life insurance underwriter major headaches.
The easiest thing to evaluate is something that is sure to happen. Mortality is 100% and 100% certain. It’s when you become different from the average group and the underwriter doesn’t know how different that changes the equation.
To cover their risk for your risky activity, life insurers tack on what’s called a “flat extra,” essentially an additional premium on top of your life insurance policy. If you regularly participate in mountain climbing, hang gliding, bungee jumping, skydiving, motorcycle or auto racing, cave diving or flying, chances are you’ll fall into this substandard or “rated” category of folks who face a greater likelihood of early expiration.
What’s the bill for your thrills? Typically, if your standard policy costs $2 per $1,000 of coverage, your flat extra would run on average an additional $2.50 per $1,000, bringing your insurance premium to $4.50 per $1,000.
It can be pretty significant depending on the age of the applicant. On average it doubles your rate, and as you get older because age is a primary factor in life insurance, it can go as high as tripling your rate to cover the risk.
You might be thinking, “Hey, a little skydiving is hardly worth mentioning on this life insurance application, right?” Wrong!
While insurers won’t likely raise an eyebrow about the random scuba dive on vacation or a bungee jump on your birthday, as long as you disclosed it on the application. Now if you do anything extreme on a regular basis and don’t disclose this on the application, they can refuse to pay up when a tragic accident occurs resulting in death and your loved ones want to collect on your life insurance policy. Remember the insurance company sings a different tune at claim time during the 2-year contestability period, or if they believe and can prove fraud was committed thereafter.
Another option is to pursue a policy that specifically excludes your risky avocation should death occur from the activity. Life insurance benefits would be payable for all other accidents or illnesses when insured under the policy.
Advantage: You pay no flat extras above the cost of your policy.
Disadvantage: Your loved ones receive nothing if you perish while engaged in the excluded activity.
Note there are few additional things you can do to help insurers look more favorably upon your pastime without giving up the thrills you love.
The best way to help your cause. Go to school, get a license, do all the safety things that you’re supposed to be doing and present yourself as someone who knows how to do whatever risky avocation you’re doing proficiently.
The good news should you quit your risky activity or leave the death-defying thrills to others, and properly disclose this to the insurance company. You can eliminate the flat extra or policy exclusion.
For more info, see “Understanding Underwriting” and “Understanding Risk”.
