Ex-smokers quids in one year after smoking ban
People who gave up smoking a year ago when the smoking ban was introduced could now cut their life and critical illness insurance premiums by up to 50%.
On 1 July 2007 a new law was introduced across England to make virtually all enclosed public places and workplaces smoke-free. The smoking ban was hailed by some organisations as having the potential to save thousands of lives.
In England, more than one in five (22%) of all adults smoke. But, for the 165,000 people who were prompted into giving up after last year’s ban, it might also have saved them thousands of pounds.
After a year of not smoking, life insurance companies start to class you as a non-smoker, which could result in a 50% reduction on life cover and critical illness premiums.
According to LifeSearch, the best deal currently on the market for a 35-year-old male smoker in good health would cost £15.51 a month from Norwich Union (for a £100,000 policy over 25-years). For a non-smoker, this premium reduces to £9.19 with cover from Royal Liver, a saving over the term of £1,896.
A female smoker would pay £12.82 with Norwich Union, or £7.50 with Royal Liver if she quit the habit – a saving of £1,596 over the 25-years.
For critical illness, a male non-smoker could save £7,881 over the term while a female non-smoker could save £4,779.
Michelle Slade, analyst at Moneyfacts.co.uk, says: "Due to the increased risks from smoking, most life assurance companies charge smokers over 50% more than they charge non-smokers. Anyone looking to take out life assurance now could make a large saving."
And people with existing policies could also benefit, as some companies will re-evaluate the original policy and charge the reduced non-smoker rate once the qualifying period has passed.
However, Slade adds some may insist on a new policy: “If this is the case, make sure that the increased premium for your higher age does not wipe out any saving you would gain for now being a non-smoker.”
Smokers who quit the habit a year ago are not just benefiting from cheaper insurance premiums. If they used the money they used to spend on cigarettes to pay into an ISA or savings account, or overpay on their mortgage, then they could also be quids in.
The average smoker puffs on 30 cigarettes a day. Assuming a packet of 20 costs £5.50, they could save £250 a month by giving up.
According to Moneyfacts, this time last year the top variable regular savings account had a headline rate of 7%. If an ex-smoker invested £250 a month into this account they would now have accumulated £3,108.
Alternatively, non-smokers could use their savings to pay off their mortgage.
Reza Attar-Zadeh, director of savings and investments at Abbey, says its mortgage customers could knock eight years off the term of their loan by overpaying by an extra £5 a day - saving over £50,000 over 25 years.
"It goes without saying that giving up smoking is not only great for your health but also for your bank balance. Using the saving wisely could knock years off your mortgage," Attar-Zedeh adds.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Critical illness insurance
This cover pays out a tax-free lump sum if you become seriously ill. All policies should cover seven core conditions: cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. You must normally survive at least one month after becoming critically ill, before the policy will pay out. Payouts are determined by premiums and premiums are determined by the severity of your illness, the less severe the lower the premiums.
Generally thought of as being interchangeable with insurance but isn’t. Assurance is cover for events that WILL happen but at an unspecified point in the future (such as retirement and death) and insurance covers events that MAY happen (such as fire, theft and accidents). Therefore you buy life assurance (you will die, but don’t know when) and car insurance (you may have an accident). Assurance policies are for a fixed term, with a fixed payout, and unlike life insurance have an investment aspect: as a life assurance policy increases in value, the bonuses attached to it build up. If you die during the fixed term, the policy pays out the sum assured. However, if you survive to the end of the policy, you then get the annual bonuses plus a terminal bonus.