It won't be the cost of a health policy that kills you

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Indy Lifestyle Online
Smoking has a nasty effect on your health, wealth - and breath. But some life assurers now charge the same rates for both smokers and non-smokers. What's more, smokers can get a better deal on pensions and private medical insurers see no need for them to pay more. Andrew Verity looks at the real price of the vice. Fact: cigarettes will damage your lungs. Fact: indulging in nicotine will hurt your wallet. But does it? Evidence is emerging that, expensive as fags are now becoming, smokers may not always end up paying extra for many of their financial needs, including life assurance and pensions.

On the face of it, this is surprising: the health statistics are scary enough. More than 120,000 people die each year from smoking - six times more than the total from road accidents, drug abuse, murder, suicide and Aids put together. Smokers should be more expensive to insure because they are a greater risk. Being more likely to die or contract illness should make life and health insurance more expensive. But exceptions have sprung up in the financial world.

Equitable Life, one of the biggest life insurers, caused astonishment in industry circles by revealing it charged smokers exactly the same rates as non-smokers for life cover. It claims the difference in death rates between its smoking and non-smoking clients is insignificant.

Nigel Webb, the company's marketing director, says: "We don't believe there is sufficient data and our experience is not that we have a difference between smokers and non-smokers. We have not experienced any difference in mortality."

Perhaps even stranger than Equitable's stance is that of private medical insurers. While 330 people die in the UK each day from smoking-related illness, private medical insurers charge smokers the same as non-smokers. The reasons, according to the insurance underwriters, reveal more about medical insurance than the dangers of smoking. First, smokers who already have a smoking-related illness will usually be excluded from taking out a policy. Second, smoking-related illnesses tend to show symptoms late in life, when premiums have become so expensive that many have ditched their policies.

And private medicine rarely covers treatment for chronic illnesses such as emphysema or lung cancer. It covers only acute conditions. So while a bypass operation, necessary for some long-term smokers, may be covered, the cost of care afterwards will not.

Most galling of all for non-smokers is the better deal on pensions. According to specialists the Annuity Bureau, a 60-year-old man with a pension fund of pounds 100,000 could buy an income of pounds 6,044 from Standard Life, one of the leading providers.

Yet if the same man had smoked 10 a day for the past 20 years, Stalwart Assurance would pay him pounds 6,464. In the morbid logic of the actuary, those who die early will draw the income for a shorter time. An early death can mean a better deal.

Equitable's stance, perhaps caused by the low number of cases it has encountered, contradicts perceived wisdom among actuaries, the insurance professionals who try to work out the risk of an early death. The Institute of Actuaries, which represents the profession, puts it bluntly: smoking will lop six years off your life.

Gillian Evans, a mortality expert at independent actuaries Barnet Waddingham, calculates that roughly one in 2,000 smokers under 45 dies each year. Among non-smokers the figure is closer to one in 4,000.

In certain areas, smoking damages your housing costs. A non-smoking home- owner aged 35 who takes out life cover worth pounds 50,000 over the life of a 10-year mortgage might pay pounds 9 a month. The same company charges smokers pounds 10.50.

While the cost of insurance may not cripple smokers, the long-term financial damage will, as Diane Leigh knows. Diane, a 39-year-old secretary from Bromley, knew that smoking put her out of pocket. But she was unaware what the effect of her 20-a-day habit had been on her finances.

If Diane, a smoker for 20 years, had put the price of a packet of cigarettes, pounds 3.12 a day, into a PEP fund instead, she would have saved pounds 94.90 a month. Assuming annual growth of 12 per cent, after 20 years, the fund would be worth pounds 74,100, according to investment managers Gartmore. Putting the money into a personal pension would have delivered pounds 77,500. Depending on the age at which she retired, that amount would pay out an extra annual income of pounds 7,000. "If I kept thinking about the money there's no way I'd go on smoking," Diane says.

Gordon Brown, Chancellor of the Exchequer, has pledged that smokers must pay not only with their lives but with their wallets. Buy a packet of cigarettes costing pounds 3.12 and pounds 2.44 will go to the Treasury. Taxation on smoking gives the Government an extra pounds 7.8bn a year, a figure Mr Brown has pledged will rise by at least 5 per cent over inflation every year he remains in office.

Even so, the decline in smoking appears to be slowing. The number of women under 25 who smoke has grown by 22 per cent since 1994. More than 28 per cent of that age group now smoke. Among men under 25, more than one-third smoke, up 2 per cent from two years ago. Until the cost of smoking is more widely understood, the habit will continue to maim and kill, and leave millions out of pocket.