Smoking: Costs will vanish in a puff of smoke

Emma Lunn looks at the mortgage and insurance benefits of quitting on No Smoking Day

(EPA)

Wednesday's No Smoking Day is the first since the ban in public places came in, and 2.25 million people are expected to try to quit this week. Anyone who succeeds will find their bank balance improves, as well as their health.

Being classed as a non-smoker means premiums can become about 50 per cent cheaper for many types of insurance, such as life cover and critical illness policies.

Research by broker Lifesearch shows that a non-smoking 40-year-old female taking out £100,000 of level term assurance over 30 years with insurer Aegon would pay almost half the monthly premiums of a smoker (£12.61 against £24.98) and save £4,453.20 over the term.

Matt Morris, policy adviser at Lifesearch, says "do you smoke?" is one of the first questions an insurer will ask a new client.

To be classed as a non-smoker, you need to have stopped smoking for only a year – so people who gave up last summer when the ban came into effect in England should soon be eligible for cheaper premiums. Mr Morris says: "It also depends on age and health, but there is a very good chance the price will fall."

If you're thinking of cheating to save money, be aware that insurers can ask you to take a "cotinine test" which detects nicotine in the saliva, blood and urine.

Quitting can also cut the cost of private medical cover. For example, a 34-year-old female smo-ker would pay £47.25 a month on Pruhealth's core plan – a non-smoker £42.59. A 20-a-day habit will cost you some £2,000 a year, so with savings on that scale, broker John Charcol suggests reformed smokers could overpay on their mortgage and clear the debt much more quickly.

Katie Tucker, technical manager at John Charcol, says: "With a mortgage of £100,000, that £2,000 will pay it off nine years earlier, and save a whopping £31,756 in interest over the term."

Almost all mortgage lenders let you do this. For example, the market-leading two-year fixed rate from First Direct, at 4.75 per cent, has an offset account and an overpayment option.

Alternatively, ex-smokers could put the money into a tax-free individual savings account. The deadline for using this year's ISA allowance is 5 April.

But it is not all bad news if you are finding it tough to quit. Insurers pay higher annuity rates to smokers as they have a shorter life expectancy. Insurers will class you as a smoker if you have smoked at least 10 cigarettes a day for 10 years. And once you have bought an annuity, you can still give up smoking without it affecting your payments because annuities are fixed contracts.