If you have a "risky" hobby such as scuba diving or flying, you could be putting more at risk than bodily injury. You may be denied life insurance or pay more for it – even if you’re in perfect health!

It’s important that you have the appropriate amount of life insurance to protect your family. If you regularly participate in a "risky" activity, you will likely pay higher premiums. But don’t even think about ignoring the facts!  Improperly completing the application could get your family’s claim denied. Here are some tips and options for protecting your family while continuing to enjoy your hobby.

The Big Question…

Life insurance applications require a lot of detailed personal information. Surprisingly, it’s not all about your health and existing coverage. The forms will also cover nonmedical questions such as your activities or hobbies. Here’s an example:

In the past five years, have any proposed insureds participated in, or do they intend to participate in: any flights as a trainee, pilot or crew, scuba diving, skydiving or parachuting, ultralight aviation, auto racing, cave exploration, hang gliding, boat racing, mountaineering, extreme sports or other hazardous activities?

It’s a lengthy question. But one you’ll want to answer very carefully.

…How to Answer It

When you apply for life insurance, it’s important to divulge information about your adrenaline-pumping hobbies. If the insurer discovers you’ve "lied" by omission, the company could deny your claim on the grounds of material misrepresentation or even cancel your policy.

If you answer "yes" to the hazardous activities question, you must complete the Avocation Questionnaire. This additional form requests more detailed information such as the training you’ve received and the licenses you hold for your activities. You will also be asked questions regarding the specific activity, such as the equipment you use and how often you participate.

Consider each question seriously and answer carefully. Now’s not the time to embellish, dismiss or guess.  Do you regularly participate in organized racing? That’s pretty straightforward.  What if you take an all-day-long scuba excursion during your annual Florida vacation? Does that count? How about the one time your friends dared you to go skydiving?

The bottom line: What counts and doesn’t count is somewhat subjective.  The best advice is to contact your insurance agent or advisor for guidance.

Insurer Response

After reviewing your application indicating a hazardous avocation, your life insurance company will do one of three things:

  • Coverage Declined.  While there are lots of insurance companies out there, a “denial of coverage” can be a real problem.  Every life insurance application will ask whether you’ve ever been declined coverage and if you must answer “yes”, it’s a red flag.
  • Higher Risk Class.  If your activities aren’t considered too risky, the company may simply rate you in a higher-risk class – “standard” rather than “preferred.” This is actually the best-case scenario. You’ll pay a little more, but you’ll have the coverage you desire.
  • Additional Flat Rate Premium.  The company may add a flat rate per $1,000 of coverage. For example:
    • Premium quotes from three companies for a $475,000, 15-year level-term policy for a 40-year-old male ranged from $733 to $1,072.
    • When adding a risky hobby to the application, each company applied a flat-rate of $5 per $1,000 of coverage. This added $2,375 (475 x $5) to the proposed premiums.  Now the premium range is $3,108 to $3,447. At a minimum, that’s four times the cost!

Any Other Options?

You have two options if you’re unwilling to pay the higher premiums and don’t want to forgo your hobby.

  • Plan ahead. If you’re reviewing your insurance needs every two to three years (as you should), buy a sufficient amount of coverage before engaging in risky activities. If you’re already participating in your hobby, buy additional insurance now (if needed) before the risks associated with your hobby increase. For example, you may be a pilot with aspirations to become an instructor, or you might progress from scuba diving to cave diving. When your perceived risk goes up, you’ll already be covered!
  • Group Insurance. Maximize any group term insurance options available to you, including coverage through your employer, spouse’s employer, or professional organizations. Group insurance policies typically provide coverage without medical underwriting or questions.

Summary

Having sufficient life insurance is an important part of everyone’s financial plan. When applying for coverage, don’t get caught off guard if the insurance company sees your hobby as risky. Be informed and plan ahead.

Ryan Jeffries, CFP is a Business Systems Manager at Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at BedelFinancial.com or email Ryan at rjeffries@bedelfinancial.com.