You think mountain climbing or sky diving is risky? Try telling your insurance agent about it.
Mitchell Fox, 30, of San Francisco, is an avid outdoorsman, a guy who rock climbs and scales mountains, but his thrill-seeking has come at a cost—$180 a month, to be precise. Fox had life insurance, but after he left his position as a director of marketing at an online stock brokerage to become co-founder of the startup GoodApril.com, a free online tax planning service, he was no longer covered. He applied for life insurance from a company that had a listed rate of $20 a month for $350,000 of term life insurance. He was accepted—if he would pay $180 a month. Reluctantly, Fox declined to buy life insurance, and he's without it for now.
"As someone who works in finance, I understand why an insurer would charge a higher rate to a higher-risk customer—that makes good business sense. And honestly, mountaineering is a dangerous hobby. My wife took a scary fall a couple of years ago on Mount Shasta and was lucky to be mostly unhurt," says Fox.
That said, Fox feels the insurance industry as a whole isn't thinking through these rates in a fair way. "It frustrates me that the difference between paying nine times as much per month for insurance was the fact that I was honest on my application about a sport I only infrequently participate in—I've climbed three mountains in two years. Am I really nine times riskier a customer than less-active people, whose chances of heart disease are probably higher? Am I really nine times riskier than a bad driver? I don't recall the question, 'Are you a good driver?' on the application."
So if you have an active lifestyle or have been thinking your life needs more adrenaline, here are some things to consider.
You will pay for that risky hobby. And you will possibly pay quite a bit more than you expect. Joel Winston, a former deputy attorney general for the state of New Jersey, is now a New York-based attorney who founded AnnualMedicalReport.com, an organization aimed at improving privacy protections for personal medical information. There are no hard-and-fast rules on what an avid or occasional mountaineer like Fox will pay, but Winston has compiled what he says is a rough estimate of additional prices an otherwise healthy person can expect to pay if he or she is seeking $500,000 in term life insurance and engages in the following activities:
• Motorcycle riding: expect to pay an additional $1,000 per year
• Scuba diving: additional $2,500 per year
• Skydiving/BASE jumping: additional $2,500 per year (and there's a good chance you'll simply be denied life insurance)
• Hang gliding: additional $2,000 per year
• Rock climbing: additional $1,500 per year
• Hunting: additional $500 per year
• Recreational boating/fishing: additional $750 per year
It isn't just life insurance, either. Winston says the individual health insurance market is "almost like the Wild West, depending what state you're in." In some states, companies selling individual—not group—policies have started increasing premiums based on dangerous hobbies. Again, these aren't hard-and-fast numbers, but assuming your insurer knows what you're doing in your spare time, a Mixed Martial Arts (MMA) fighter can expect to pay an additional $1,000 a year for health insurance, and a marathon runner, an extra $750. If you have an individual health plan and own a registered gun, whether it's something you hunt with or have tucked away in a drawer, you might easily spend an additional $2,000 a year, says Winston, although that practice will end when the Patient Protection and Affordable Care Act, also known as Obamacare, begins.
You can pretty much give up the idea of getting long-term disability insurance. There are probably exceptions, but if you engage in risky activities like skydiving, you won't likely get this insurance, or you'll have to pay so much that it won't be worth it. Vincent Sarullo, 45, is a co-founder of Tower Fund Services, a financial services company in Red Bank, N.J., and while he has a quiet day job, he enjoys deep sea diving. Sarullo is also a rescue diver for the fire department in Red Bank. He works in a respected industry and is trusted by his local fire department to dive. Doesn't matter. He can't get the insurance.