What You Need to Know About Drunk Driving & Life Insurance
Life Insurance rates are based mainly on risk: the risk the company offering coverage has by paying out in a death benefit claim too early without having received enough premium from the a policy holder. Granted, this is a very general explanation of what rates are based on, not including other factors such as overhead cost, commissions, and market volatility just to name a few, but the point is that the mortality tables that place a number or percentage upon this risk are affected by the habits and life style that a person lives.
I recently dealt with a client who was incredibly upset because he got a flat-rate on his life insurance policy due to his drunk-driving record. He just couldn’t understand why an OUI (DWI in his state), should warrant an extra cost in premium for the same policy that someone else without the arrest would have to pay. I did my best to lay out the reasons as to why it is a MAJOR concern for an insurer to offer coverage to a person who made that “mistake.”
So what is a flat-rate (flat extra)? Simply stated, it is financial padding for an insurance company when there is a life insurance risk that their regular rating system doesn’t quite cover. For example, the insurer might offer coverage at the Standard Rate (average rate which is usually the 3rd or 4th best rate a person can get, and is what most people applying for receive) but add on an additional cost (flat-rate/extra) of a $7.50 per thousand of coverage for 5 years. So, why a flat extra for someone with a drunk driving charge? In this case, the underwriter believes there is a moderately high risk of recurrence in the first six years and that if a person makes it past that the flat-extra will drop off and they will now have the straight Standard Rate.
Many insurers give flat-rates for drunk-driving charges that occurred under insured age 25 and within the last 5 years from the date of the application. Logically speaking, the carrier wants to make sure the person applying, who has already not had many years of driving experience (so there are innate actuarial issues in place already), isn’t prone to negligent driving or a history of alcohol abuse. When someone gets caught drunk driving, whether that was the only time they ever drank in excess or not insurance companies will look at that as a moving violation and a potential alcoholic in the making. The thought is that your negligent driving is likely to put your life (as well as the lives of others) in danger, then that creates a higher risk insured. If they are frequently having issues that involve alcohol, then potentially, it could lead to health issues that could increase the likelihood of premature death, such as cirrhosis of the liver, diabetes (alcohol has a lot of excess sugar), heart and brain conditions such as heart disease and stroke.
So generally, drunk driving is seen as a valid reason for a life insurance carrier to raise a person’s premium because they could be a higher risk of a pre-mature death due to lifestyle. If you do drink a lot, whether on a daily basis or as a “binge drinker”, you may want to consider cutting down as in excess, it can be bad for your health and most likely, raise your life insurance premium. Just so you know, it is even worse for disability and long-term care underwriting! So you have a lot at stake. Drive safe and get some life insurance coverage now. Even a flat-rated policy is much better than no policy at all!
About the author: Kyle McDonald holds FIC, FICF, FSCP® & CLTC designations. His viewpoint on life insurance is simple, “Anyone with a family must have life insurance. In the end, life insurance is for others you care about, not you.” He is ready to help you and your family get the best option available. Contact Kyle today at 1-800-651-1953 or KMcDonald@Pivot.com.