Originally published September 24 2007
Physical Well-Being Impacts Financial Independence
by Andrea Jean
(NaturalNews) Most of the time when we think of our health, we think in terms of quality of life – being able to play with our kids, do the things we want to do, live a long life with our loved ones. Another important aspect of our quality of life depends on our financial resources, and our physical health plays a fundamental role in our financial independence as it relates to term life insurance costs.
Although millions of Americans are covered by group life insurance plans, millions more work for companies without a group life insurance benefit, are self-employed, or are stay at home parents. These individuals depend on individual life insurance policies to protect their family's financial security in the event of death. Even those who do have group life may not be able to adequately insure within the group limits or need to plan for a time when they may leave the company and find themselves in need of individual coverage. For all of these reasons, Americans shop around for affordable individual life insurance. There are numerous websites and thousands of agents and brokers out there with the ability to offer attractive initial quotes after just a few questions about your age, gender, and tobacco use, but those quotes are meant only as a starting point for your final cost of insurance.
Once you sit down with an agent or broker, you will likely go through an extensive question and answer session about your health and family history. You may also have to go through a physical exam ranging from simple blood work to an EKG and stress test. Your complete application and medical exam packet is then sent to an underwriter, and when it comes back you may find that the actual price of your coverage is significantly higher than the initial quote.
This is not a bait and switch tactic by the insurance companies. Their ability to stay in business and serve the needs of their customers depends on their ability to make accurate judgments about your lifespan, and they are very good at their estimates. Ideally in the case of term life insurance, the company wants you to outlive your policy because unless you have purchased a return of principal rider (which will raise your cost significantly), your survival means that they get to keep all of the money you paid them over the course of the policy. If your health suggests that you will not live through the term of the policy, you are going to have to pay more throughout the term so that they have enough invested to cover the death benefit. From the point of view of the consumer, this means that the healthier you are, the less you have to pay for life insurance. The impact on your family's financial independence and security is therefore directly connected to your good health.
To illustrate this point, consider two hypothetical life insurance customers. Bert and Ernie represent two 30 year old men purchasing $200,000 in 30 year term life insurance from a highly rated carrier. They are non-tobacco users and have no family history of cardiovascular disease or cancer.
Bert is 6'0" tall, is of average weight with a BMI of 22, has blood pressure of 120/80 and a cholesterol level of about 180, with a total cholesterol/HDL ratio of 4.
Ernie is also 6'0" tall but is clinically obese at a BMI of 32. His blood pressure is 140/90, his cholesterol is 220 and he has a total cholesterol/HDL ratio of 6.
Based on these parameters and assuming no other mitigating factors (such as a sky diving hobby), Bert would qualify for a rate of about $35 per month. Ernie does not get off so lightly with a quote is $66/month.**
Besides the possible cost disincentive for Ernie to obtain life insurance at all, which is unfortunate considering that he is more likely than Bert to need to have coverage for his family, the difference in cost can impact long term financial goals.
To see the difference, consider the future growth of $31/month (the difference between Ernie's premiums and Bert's) invested for 30 years at a hypothetical return of 8%. The total investment of $11,160 over time would compound to a little over $46,000.
To throw another variable into the loop, if Ernie uses tobacco, his insurance could run about $135 per month. That difference of $100 per month compared to Bert's non-smoking, good health quote translates to $36,000 that could be invested in retirement savings. Compounded at 8%, this represents a total value in 30 years of $149,000.
Finally, in the worst case scenario where Ernie actually does die before the age of 60 from a heart attack, he has now negatively impacted his childrens' ability to obtain affordable life insurance because they have to disclose a family history of cardiovascular disease.
In a society where we are seeing continuously increasing obesity rates, the pressure for insurance companies to hedge their risk will force rates to rise. Individuals can control some of this price increase by maintaining good health. Although weight may not be an individual factor for life insurance quotes and some conditions are hereditary, obesity is recognized as a contributing factor to cholesterol and blood pressure problems. A healthy diet and regular exercise will not only improve your quality of life now, it may also improve your family's financial prospects for years and generations to come.
**Quotes referenced in this article were as of August 30, 2007. They represent preliminary quotes from an actual insurance company based on the stated parameters but should in no way be construed as a reliable basis for a particular individual's insurance cost, which could be higher or lower depending on specific circumstances. Contact your insurance agent for more information about your situation.
About the authorAndrea is a Denver area financial planner, financial educator with the Heartland Institute of Financial Education, writer, wife & mother. Questions, comments and story ideas may be directed to [email protected]
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