Hobbies affect life insurance because they can add additional risk to an otherwise risk-free applicant. Additional risk can translate to additional premiums.
Even if you’re in perfect health, the activities and hobbies you participate in could make you slightly harder to insure, but we know the best life insurance companies for each hobby. Click on the hobby you’re active in below for more information and best practices.
How Activities And Hobbies Affect Life Insurance Rates
Each life insurance company has questions on their applications on lifestyle choices, among them your extracurricular activities. If you answer “Yes” to any part of these questions, you’ll be asked to fill out what is called an avocation questionnaire.
An avocation question questionnaire is used to identify what hobbies you’re active in, to what extent, what safety precautions you practice, and what your level of expertise is.
The greater detail you can give to the underwriter via the avocation questionnaire supplied, the better. Any unknowns are frowned upon, resulting in a worse rating or failure to make an offer. In other words, if the underwriter can’t assess the total amount of risk, they simply can’t approve you until this information is given.
How Hobbies Are Priced
The most confusing part about buying life insurance where hazardous activities or hobbies are present is understanding the pricing model. But don’t let it deter you; we’ll simplify it for you.
There are two components to the premium you’re being quoted:
- The base premium
- The flat extra
When you’re discussing the premiums with the agent, the first component is the base premium, which is what price you’d pay based on rating alone. For example, there is a single price at Preferred Best, Preferred, Standard Plus, Standard, or Sub-Standard (for those in poor health or other high risk categories).
Standard is considered the average, where the others are all discounted rates for those who qualify based on health, family history, driving record and other requirements.
Flat Extra Fees
Flat extra fees, usually just called the flat extra, are extra costs attached to the base premium. They are calculated as a dollar amount per thousand of coverage, added on an annual basis. Let’s break that down.
The fee is a dollar amount, like $1.50, multiplied by the number of thousands in coverage ($250,000 is 250 units of 1,000), added annually. Mathematically, it looks like this:
250 units x $1.50 = $375 flat annual fee
If you were requesting monthly payments, this is simply divided by 12 and added on to your base premium amount.
Tim is a rock climber who climbs several times per month. He uses safety equipment, follows safe climbing routes, and always climbs with a friend. Once or twice a year, he vacations with his local club to higher altitude climbs. Other than his climbing risk factors, he is in perfect health and has no family history of heart disease, diabetes, or cancer. Based on this information, and more, his underwriter has determined he is a Standard class risk, with a flat extra of $2.50.
Tim is a 35 year old male, looking for $500,000 in coverage for 20 years. Here is the breakdown of his premiums due:
|Base Premium||Flat Extra Charge||Flat Extra Fee||Total|
The calculation is $519 + ($2.50 x 500) = $1,769.
Keep in mind, not every carrier will assess the risk the same. Flat extra fees can range from $1.00 per thousand up to $10.00, and can be assessed for different time periods. A flat extra can be assessed for a certain number of years, like 5, where it would go away after 60 months, or it can remain on the policy permanently. When it comes to the time period assessment for hobbies, it’s typically not given unless there is a definitive end in the activity in the future.