Seems like everywhere you look there is an article or report about marijuana legalization in Canada. How will it be dealt with in this regard? In that regard? How much will it cost? How many new users? What about… well, here is another one. How will marijuana legalization affect your life insurance?
Last month, I went on a golf trip with some friends of mine. I’m not a very good golfer, but it’s a great opportunity to grow and strengthen relationships. In the evening, it is common to engage in some friendly talk, a bit of trash talk, a bit of beer, some whiskey or rum and well, you get the idea. It’s also pretty common for a deck of cards and a case of poker chips to make their way to the table.
On one night, in particular, a neighbour, who knew some of the guys in the group, was invited to join in a little Texas Hold’em. We’ll call him Slim. Slim is a lawyer, and before long it became painfully clear that, besides knowing a lot of legal stuff, he knew a thing or two about
Texas Hold’em as well. The pile of chips in front of him managed to grow at a pretty impressive pace.
It wasn’t long before Slim brought up the topic of marijuana legalization. He framed it in such a way to initiate a conversation from an alarmist perspective. He said, “Making recreational use of marijuana legal, was going to jeopardize the life insurance in place for all these newly legal users, and threaten the death benefits for the beneficiaries.”
I’m not certain whether Slim, was trying to have a serious conversation about marijuana use and its potential negative impacts on life insurance, or whether he was trying to distract the other players at the table to put them off their game of Texas Hold’em. I am certain, however, that he isn’t terribly well informed about how life insurance works.
Life Insurance Is Not Always Understood
Clearly, Slim is an educated man. He wouldn’t have a successful career as a lawyer if he weren’t, but, a good education in any one subject does not mean you necessarily have a good education in another subject. On the matter of life insurance, I am occasionally reminded, such as I was by Slim, that there is a great deal of misinformation and misunderstanding out there as to how it works, how it is underwritten, and why not everyone qualifies for life insurance.
Marijuana Legalization – Time to Look at Revisions
The announcement by the federal government that they were going to legalize the recreational use of marijuana challenged the various insurance companies to determine how they were going to apply the recreational use of marijuana in the underwriting process. Some insurance companies were already looking at revising, or had revised, their guidelines before the announcement.
Not Everyone Qualifies For Life Insurance
When a person applies for life insurance, they go through a series of questions and/or tests that are designed to give the underwriters a sense of a person’s life expectancy.
These questions start with a person’s identity, knowing who they are dealing with is paramount to getting a good understanding of the risk they are being asked to assume. This will include the identity of the life to be insured, as well as the owner of the policy, and any third party that may have an interest in the policy. This is to determine whether there is, in fact, an insurable interest.
One cannot take out a policy on just anyone. There has to be a potential financial loss for someone to hold insurance on the life of a person. Typically, a spouse, child, parent or grandparent are considered to hold an insurable interest in the life of a person, but also a business partner, employer, employee or lender could be included as well.
Financial questions are asked as well. The insurance company needs to make sure that the amount of insurance being applied for is reasonable with respect to the financial position of the insured.
There are usually extensive questions regarding the health of the proposed insured as well as that of their family. Clearly, there could be any number of health factors that would make it a bad decision on the part of the insurance company to assume the risk and insure the life of a person whose health is compromised. They can, and do, offer coverage at an increased premium or decline to issue a policy if they feel the risks are too high.
Lifestyle Considerations
Most importantly, at least for the purposes of this article, there will be questions on personal information about the proposed insured. Why the insurance is being sought? What other insurance is in place for the insured? Occupation? Citizenship? Residency and foreign travel? Criminal records? Driving history? Use of drugs, alcohol and tobacco? Hazardous sports? These types of questions will be used to determine risks associated with lifestyle. This is where the use of marijuana comes into play.
Considering the recreational use of marijuana in the underwriting process is not new to the life insurance industry. Questions about drugs, alcohol and tobacco use have been on application forms for as long as I’ve been in the industry. What is new, has been a gradual relaxing of the weight that is put on the use of marijuana.
Changes to How Life Insurance For Marijuana Use is Underwritten
In the past, persons who smoked pot were automatically, classified as smokers. So even a single joint in the past twelve months would have automatically classified you as a smoker, which roughly doubles the premium on a typical term life policy. Could it also have been seen as an indicator of a tendency to ignore the illegal nature of other activities? Taken in conjunction with a poor driving record and/or hazardous sports, it could be seen to contribute toward a reckless lifestyle, and hence, less insurable or uninsurable.
Now, life insurance companies, in general, accept persons who use marijuana less than four times per week as non-smokers, provided that they are not also users of tobacco products. If they add tobacco even in small amounts they will still be considered a smoker and get those higher premiums. This is good news for the occasional user of marijuana because it means their life insurance premiums will not automatically be higher just because of this periodic use.
A recent CBC article goes so far as to suggest that life insurance companies are no longer treating marijuana use as high-risk as smoking.
More Frequent Users
For more frequent users, however, things are not as relaxed. Most insurance companies will still associate a higher risk to those who use marijuana more frequently. Those who use marijuana four or more times a week will usually be: rated higher; as a smoker; or, declined altogether.
I hope the above helps to dispel some of the myths about how the use of marijuana affects the underwriting process. What about policies that already exist, which is what Slim seemed concerned about? I had to give some backdrop about the underwriting process in order to talk about the question of marijuana use and how it might affect existing life insurance policies.
Referring back to underwriting, once a policy has been underwritten and is in force, then there should be no reason for a policy claim to be denied unless the insured was not truthful in answering the questions. If new risks develop in a person’s life, such as a diagnosis of a health condition; a new job working with explosives; becoming an alcoholic; or, even starting to use marijuana on a daily basis, the insurance company will honour the terms of the contract. As we age, new risks develop until eventually, and inevitably, one of those things leads to our death.
Answering All Questions Truthfully Is Important
So, provided that all questions were answered truthfully, and the insurance company accepted the level of risk associated with their underwriting of the application, the legalization of recreational use of marijuana in Canada should not present a problem for insured Canadians or their beneficiaries.
When working with my clients who use marijuana, I am careful to make sure that I understand the nature of their use, so that we can determine what companies offer the best options for their coverage.
If you or someone you know uses marijuana and is concerned about insurability, I can be reached by phone at 780-945-1307, or by email at perry@blackedgeadvisory.com to answer any questions you may have about your circumstances. I have been pretty successful helping users acquire basic amounts of life insurance, even for frequent users.