Many people might wonder what sports and hobbies have anything at all to do with life insurance. In the eyes of life insurance companies – plenty! What we may think of as enjoyable extracurricular activities, life insurance companies can often view as risk factors.
What’s a risk factor? Anything that might increase the likelihood of an insurance company having to pay out a claim!
That includes obvious health factors, such as high blood pressure, smoking, obesity, or a history of heart disease or cancer. But it also includes lifestyle habits, and those include sports and hobbies. Some sports and hobbies are simply deemed to be more dangerous than others, and as such, life insurance companies may take at least a somewhat negative view toward them.
Why do sports and hobbies even matter with life insurance?
In the normal course of events, we can think of sports and hobbies as constructive outlets, or even activities that have the potential to improve health. All that is true, but some also carry the risk of debilitation or even death.
It is easy to see why a life insurance company would be concerned with your participation in activities that could lead to an early death. Should that unfortunate situation occur, a life insurance company would have to pay out your death benefit early in your life. Life insurance works on the assumption that you will live a certain number of years, and in the process you’ll be contributing – through your premiums – to the pool of cash that the company uses to pay out claims. Should you die prematurely, that cash flow will be lost, in addition to the necessity of an early payout of the death benefit.
Life insurance companies will necessarily look to avoid risks that could result in such an outcome.
Sports and hobbies deemed to be risky
What sports and hobbies will a life insurance company consider to be high risk?
Some of the possibilities include:
- Skydiving
- Scuba diving
- Hang gliding
- Hot air ballooning
- Rock climbing
- Parachuting
- Bungee jumping
- Car racing
- Bike racing
- Boat racing (okay, any kind of racing)
- Surfing
- White water rafting
- Flying a private plane
- Mountain climbing
- Skiing
This is just a sampling of activities that a life insurance company may consider to be dangerous and high risk. In fact, generally assume that any activity you participate in that is unusual and carries an above average risk of danger will be a factor for life insurance company.
How will they know you even participate in risky activities?
How will a life insurance company know about your dangerous activity if you don’t disclosing on the application? Actually, they may or they may not – but there are two potential outcomes that you need to consider.
The first is that the life insurance company will conduct a background investigation. They will of course check into your medical history. If it indicates that you have been treated for injuries that resulted from participation in a dangerous activity, they will be looking for more information from you. If there’s a pattern of injuries they may simply assume that you regularly participate in a dangerous activity and proceed accordingly.
The second risk is even more significant. Life insurance policies contain a “period of contestability”. This means that in the first two years that a policy is in force, they can decline to pay benefits based on a material omission in your application. If you take a life insurance policy, and you die in a skydiving accident 18 months into the policy, the life insurance company can contest the application and deny paying the death benefit.
The effect on your life insurance premiums
Life insurance companies can handle high risk activities in one of two ways – either they can charge higher premiums, or they can decline the application altogether.
Many companies will decline your application, since the potential for paying an early claim is real and possibly immediate. If you do engage in dangerous activities, you’ll need to find life insurance companies that take a more liberal view of the particular activity that you participate in. Life insurance companies are all different, and that includes their view of certain risk factors.
Companies that will approve policies to people who participate in dangerous activities will generally do so at higher premiums. How high those premiums will be will depend upon the activity and the company’s view of how dangerous it really is.
It is to your benefit to disclose your high risk activity on your life insurance application at the very beginning. That will eliminate the possibility that your life insurance benefits could be contested upon your death. It may result in higher premiums, but at least you’ll know that you are insured.
