The high insurance price of a risky life
fast cars, surfing monster waves, bungee jumping off bridges and air boarding
in free fall may be great ways to get a rush. But for the ultimate extreme experience,
try landing affordable life insurance with your death-defying pastime.
If your lifestyle is closer to "The Fast and the Furious"
than "The Young and the Restless," you can expect to pay twice or
even three times more than your couch-potato roommate for the same life insurance
"The bottom line is: Is what you're doing dangerous? Are
you risking your life by doing it? It's almost common sense. You could pretty
much figure the rate yourself," says William Carroll, an actuary with the
Council of Life Insurers.
Don't misunderstand, dude. Life insurers want to write you a policy.
That's their business. They're not out to harsh your bliss. But neither do they
want to shell out major Benjamins the first time you pack your parachute backward.
"We're looking for ways to qualify people, not disqualify
people," says Carroll. "But there are people who disqualify themselves
by what they do."
Relax. There are ways to get the coverage you want -- and even
a couple tricks to nudge those extreme payments down -- without giving up the
thrills you love.
Extreme sports, extreme premiums
Let's face it, if you were a life insurer, you wouldn't offer your best
rate to Vin Diesel, would you?
Life insurance actuaries go to great lengths to arrive at pricing
for their three most-common policy categories -- standard, preferred and super-preferred
-- to insure that their income exceeds their payouts. Those rates are based
partly on mortality rates, partly on company experience and partly on practical
knowledge about our ever-changing habits and lifestyles.
By their very nature, life insurance rates reflect the life expectancy
of Joe and Jane Average, not Triple-X.
Extreme sports such as bungee jumping are extremely hard to handicap,
according to ACLI spokesman Jack Dolan.
"When bungee jumping came out, at first companies were not
writing (insuring) it. Then, when they started writing it, the price was all
over the map," he says. "That's what happens with newer sports that
pose threats. When a company starts developing a history with it, they are able
to start pricing better."
The very novelty that gives you the adrenaline rush gives your
life insurer a peptic ulcer.
"The easiest thing to bet on is something that is sure to
happen: I know you're going to die, I know how much to charge, no problem,"
says Carroll. "It's when I don't know, when you become different from the
average group and I don't know how different. And then I run into the other
problem that you know more about yourself than I do, and that tilts the equation."
To cover their risk for your risky pastime, life insurers tack
on what's called a "flat extra," essentially an additional premium
on top of your life insurance policy. If you regularly participate in mountain
climbing, hang gliding, bungee jumping, helicopter skiing, sky diving, motorcycle
or auto racing, big-wave surfing, deep-sea diving or flying, chances are you'll
fall into this substandard or "rated" category of folks who face a
greater likelihood of early expiration.
What's the bill for your thrills? Typically, if your standard
policy costs $2 per $1,000 of coverage, your flat extra would run on average
an additional $2.50 per $1,000, bringing your insurance premium to $4.50 per
"It can be pretty significant," says Joe Perry, vice
president, insurance products and sales for Countrywide
Insurance. "Depending on the age of the borrower, on average it doubles
your rate, and as you get older, because age is a primary factor in life insurance,
it can go as high as tripling your rate."
About now, you may be thinking, "Hey, a little skydiving
is hardly worth mentioning on this life insurance application, right?"
While insurers won't likely raise an eyebrow about the random
scuba dive on vacation or a bungee jump on your birthday, if you do anything
extreme on a regular basis and don't fess up, they can refuse to pay up when
your number is up.
What would Johnny do?
So what would "Jackass" star Johnny Knoxville do? Try to negotiate
a better rate, for starters.
Perry says that while most insurance companies are willing to
negotiate their own policy rates, they generally farm out their high-risk policies
to large corporate reinsurers. The good news is that without these corporations,
insurers might not cover your hair-raising adventures at all; the bad news is,
reinsure rates are generally inflexible.
Another option is to pursue a policy that specifically excludes
your risky endeavor. State laws vary on which exclusions are permissible, so
a national insurer with access to many carriers might be your best one-stop
source. Advantage: You would pay no flat extras above the cost of your policy.
Disadvantage: If you perish while engaged in the excluded activity, your beneficiaries
would receive nothing.
"I think our most common experience is probably with pilots,"
says Perry. "Right now, it's running about 50-50. Half will exclude that,
the other half will pay the extra premium."
If you're hesitant to risk the financial well-being of your beneficiaries
on your knack with a hang glider, there is another option that can literally
save the ranch: a mortgage-life policy. Mortgage life is a group policy that
pays off your home if you buy the farm.
Because it's a group policy, its pricing structure is level, meaning
the couch potatoes in your group offset you daredevils. Perry estimates a pilot
could save 25 percent to 30 percent by choosing mortgage life over a rated policy.
The disadvantages are that coverage is limited to the face amount
of your mortgage at the time of application, and the mortgage company is the
sole beneficiary. And to qualify, you'll need a mortgage, of course.
Still, if you can't afford the high premiums of a rated policy,
a mortgage-life policy that would leave your family a house paid in full is
not a bad second option.
Carroll says there are a few additional things you can do to cause
insurers to look more favorably upon your pastime.
"The best way to mitigate your rate? Go to school, get a
license, do all the safety things that you're supposed to be doing and present
yourself as someone who knows how to do whatever this unusual thing is that
Perry adds that should you decide to settle down and leave the
death-defying feats to others, be sure to notify your life insurance agent.
"You can eliminate the flat extra just by giving up the activity,"
he says. "A lot of people give up smoking and don't tell their insurance
company about it. That can reduce their premiums dramatically."
Jay MacDonald is a contributing editor
based in Mississippi.
-- Updated: April 16, 2004