To pay less for your debt balance insurance? Stop smoking
Do you think about taking out a loan for building or buying a home? Honestly: then you better stop smoking now, because it really saves hundreds of dollars for your debt balance insurance. ‘Vapours’ is only allowed if you do it without nicotine and also use nicotine patches is equated to smoking.
Just repeat: the debt balance insurance is there to ensure that your heirs do not have to repay your (part of a) credit if you die during the term. The price of the insurance depends, among other things, on the amount of your loan, the term and the interest rate. Your age also plays a role. Logically: the older you are, the higher the chance that you will die during the term of the loan, and the more you will have to cough up.
Your bad habits cost money
In addition, your ‘attitude to life” counts. For example, non-smokers receive a cheaper rate than smokers. The reasoning is again: those who live healthy, live longer, and so the chance is smaller than one dies during the term of the loan. Result: a lower price.
And make no mistake: that rate difference for a smoker or a non-smoker is considerable. Please follow our example:
Example A: A non-smoker, born on 5 May 1995, closes a loan of 150,000 USD, with a term of 20 years at a fixed rate of 2 percent. At AXA, that person pays 123.75 USD each for 13 years (or 1.186.96 USD).
Example B: A smoker, born on 5 May 1995, closes a loan of 150,000 USD, with a term of 20 years at a fixed rate of 2 percent. At AXA, that person pays 174.25 USD for 13 years (or once only 1.764.30 USD).
The rate difference is 577.34 USD.
This difference also applies to other banks. Some banks for example charges EUR 111.07 or EUR 1,033.88 for the same non-smokers loan. For smokers this will be 13 times 136.19 euros or a once-only 1,323.94 euros.
Your ‘photo’ as a smoker or non-smoker is recorded at the moment you take out the debt balance insurance. The rate is also fixed immediately. The fact that you start smoking afterwards does not play a role! “Risk-avoiding elements during the term of the contract, unless they are specifically determined in the special conditions (e.g. military personnel on mission), have no impact on the current contract,” says director of an insurance company.
Different banks use different provisions. For example, Some Insurance does not apply the non-smoking rate until you have been smoke-free for at least 12 months. Smoke or fumes is equivalent to smoking, if your liquid contains nicotine. If you smoke electronically without nicotine, you are not considered a smoker.
That your status is fixed from the start of the agreement also has a downside. Suppose you still manage to stop a year after taking out your debt balance insurance, then you are stuck with that expensive rate. Belfius has a statement: “Studies show very clearly the negative effect of smoking in the long term, even after discontinuation. As far as the latter is concerned, the sustainable nature of the abandonment is something that we cannot monitor or follow up, and it would theoretically only slightly reverse the risk of premature death.”
Improve your life?
Is there really no solution if you improve your life after taking out your debt balance insurance? Anyway. This way you can cancel your current policy and enter into a new one for the outstanding amount.
“The principle is that we take a ‘photo’ at the start to determine the policy conditions and that these (rate/acceptance) continue as long as the policy is in effect. Do you want to change something? Then we create a new ‘photo’ and treat it as a new business,” says the director. The same principle also applies to other insurance companies and – at the earliest after a smoking ban of 1 year – at AXA.
The problem is that with such a new contract you will not automatically benefit, because your new insurance is not automatically cheaper. You are a few years older, so your mortality risk has increased and is included in your new premium.
Some banks still struggle to reward your healthy(er) life. For example, you can definitely stipulate an amendment to your contract from smoker to non-smoker at some insurance company.
If you know that you want to take out a home loan and additional debt balance insurance within the foreseeable future, the money you save may be the extra stick to stop you from smoking.