Oh, grow up! How youthful indiscretions impact your insurance rates

By Posted : 09/11/2012

bad credit, late payment, smoking affect insuranceMost people manage to leave behind many of their bad habits along with their adolescence. But if you keep smoking, spend too much time on the couch, drive badly or pay your bills late well into adulthood, many types of insurance could get more costly.

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Insurance companies base their decision to insure you and how much they charge on factors that vary according to the type of policy. For example, while home and car insurance underwriters typically take your credit history into consideration, others, such as life insurers, rarely do. Health issues have a greater impact on life insurance rates.

The good news is that your past behavior isn't likely to affect your current insurance rates unless you continue them into your adult life. The bad news is that the compromising habits you still indulge can sometimes mean hefty hikes in payments.

Smoking and insurance rates

One expensive habit many people start in their teen years is smoking.

While smoking rates among teens dropped over the past decade, the steep rate of decline from 1997 to 2003 has slowed considerably, according to a recent report by the Centers for Disease Control and Prevention (CDC). Nearly 30 percent of high school boys and 18 percent of high school girls in 2011 used some form of tobacco. More than 8 percent of middle school males and nearly 6 percent of middle school females did so in 2011.

Quitting smoking is a good idea at any age, but the sooner, the better, when it comes to insurance rates.

"Smoking absolutely raises your life insurance premiums," says Maureen Leydon, vice president and chief underwriter for MetLife in Boston. "Depending on your overall risk profile, your rates could more than double. If you have other health risks in addition to smoking, your rates could go up even more." (See: "How much insurance your cigarette money could buy.")

Jeff Reinig, head of personal lines products for the central zone of Farmers Insurance in Los Angeles, says that his company offers a discount for nonsmokers on their home insurance.

"Not smoking is looked at as indicating better behavior, so we give a small discount of less than 5 percent to nonsmokers," says Reinig. "We used to have a nonsmoking discount on auto insurance, too, but we don't offer that anymore because not only do fewer people smoke, but studies have shown that other distractions are deemed more likely to cause an accident than smoking."

Bad driving fuels auto and life insurance surcharges

If you have driving tickets and are accident-prone, your life insurance premiums could increase along with your auto insurance costs. Reinig says that your car insurance rates can go up by 10 percent to 100 percent depending upon the kinds of citation you get and their frequency. He says serious citations, such as drunken driving, increase your rate by a greater amount. (See: "Ticket? Uh-oh! How common infractions impact car insurance rates.")

If you have an accident, the most important factor impacting your auto insurance rate will be which driver was at fault.

"If the accident was not your fault, you may not have to pay a higher rate at all or possibly a nominal rate increase up to 20 percent," says Reinig. "The severity of the accident won't impact your rate, but if you are at fault your premiums could go up anywhere from 10 to 100 percent. The more recent your accident is, the more expensive your rate will be, especially if you have had more than one accident."

Leydon says moving violations or accidents can increase your life insurance premiums because anything that can impact your longevity is factored in to determine your rate.

"The amount of the increase depends on the number of violations or accidents, the severity and how recent they are," she says. "A DUI will typically increase your life insurance premium for term life insurance at $2.50 or $3.50 per $1,000 of coverage."

Budget blunders: credit history and insurance

The impact of a bad credit history or even bankruptcy is less clear cut, but it can influence your premiums on your auto, home and life insurance policies. (See: "Credit scores and insurance: If you don't succeed, try again.")

Life insurance premiums won't necessarily rise, but you could be turned down for a policy if the insurance company feels you cannot make the payments, Leydon says.

Reinig says that bad credit has less of an impact on auto insurance rates than having multiple accidents.

"In theory, your credit history is a proxy for your behavior," he says. "If your credit is bad, an insurance company thinks you are more likely to make a claim."

The amount of additional premium you could pay for auto insurance or home insurance varies widely according to the severity of your credit problems along with other factors that influence your rate.

Unhealthy eating and poor exercise habits affect insurance

It also pays to stay in shape.

"We look at your height and weight as well as other factors, but our definition of overweight may be different from a medical diagnosis. We also look at the potential for other risk factors that come with being overweight such as cardiovascular issues and Type II diabetes," says Leydon. (See: "Take care or pay a higher share of health insurance costs.")

She says, on a $500,000 20-year term life insurance policy, a 45-year-old with no health issues would pay $654 annually. The rate increases in increments for someone who is overweight. Depending on how much he or she weighs, the rate jumps to $769, $989 or $1,359, or more than double the premium for the same policy.

Insurance policy lapses may cost you

Reinig says late payments and lapsed policies will affect both your auto insurance and your home insurance.

"On your auto insurance, if you are more than 30 days late your premiums could go up 25 to 50 percent," he says. "If your policy lapses and you are driving uninsured, that's considered a big risk and your premiums could go even higher."

For home insurance policies, the length of the lapse in coverage due to late payments will impact the increase in your rate.

"Generally, the longer the lapse, the more likely your policy will be considered new business, so your policy would require new underwriting," says Reinig. "You would lose any discounts for continued insurance coverage or for a lack of claims, so you risk your insurance premiums going up by as much as 20 percent."

Life insurance policies have a built-in grace period, says Leydon, so typically you can reinstate your policy by paying your back premiums.

"Depending on how long the insurance has lapsed, you may be asked some health questions just to make sure nothing has changed," she says. "Your premiums won't go up if your policy is reinstated."

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