Insurers Place High Premium on Thrills

Medical advances and healthier lifestyles have combined to cut life insurance rates to near historic lows--but not for the likes of Joe Humenik.

Humenik, a healthy 48-year-old from Ohio, was paying about $3,500 for a $1-million term-life policy--a rate that is nearly twice what an average man his age would pay.

The reason: Humenik pilots his own plane. As far as many insurers are concerned, that makes him a “thrill seeker” qualified only for high-risk rates.

Daniel Funk, a publishing executive from Santa Monica, has a similar problem. The 40-year-old father of two likes to rock climb. He’s a careful climber--and probably is healthier for his active hobbies--but he was paying $800 more for life insurance each year than someone who is more sedate.

“I think the likelihood of getting hit by a truck is a lot greater than falling off a mountain, when you have been trained and are specifically trying to make sure that doesn’t happen,” Funk said. “I have never been injured while climbing, but there is typically a 50% to 100% surcharge on any life insurance I want to buy.”

Many activities can push a normally “preferred” life insurance customer into the dreaded realm of the “rated”--those whose premiums are set individually because they don’t fall neatly into a specific category, life insurance experts say.

There are no statistics showing that scuba divers, mountain climbers, sky divers or pilots shorten their life spans by engaging in these activities. But insurers figure they probably do, so they, and those who smoke the occasional cigar, are thrown out of the normal life insurance rating pool.

In addition, those who are overweight or who have a serious ailment in the family--even if the ailment isn’t deadly--can find themselves paying a lot more for life insurance than the average American, said Mary Maguire, a Chicago-based insurance expert.

“We like to think that there are no bad risks, just some people who are perceived a little differently,” said Chris Greis, president of Leaders Partners, a wholesale life insurance distribution company in North Barrington, Ill.

Typically, consumers who want to buy life insurance are asked to fill out a questionnaire. In addition to age and health data, most insurers specifically ask whether the applicant is a pilot, scuba diver, mountain climber or “participates in other dangerous activities.”

Say yes, and an agent probably will pry for more information. People who go rock climbing or bungee jumping once a year are likely to have little trouble. But someone who routinely participates in high-risk activities can become largely uninsurable, experts say. And failing to disclose dangerous hobbies can jeopardize benefits if a claim is filed.

Calculating Risk

How much can rates rise for the serious thrill seeker? Depending on the frequency of participation in dangerous activities and on the insurance company’s experience with the issues in question, a healthy 30-year-old can go from paying about 75 cents annually for each $1,000 in coverage to $5.75 per $1,000, said Greis, who specializes in high-risk coverage.

(These rates are for term insurance, which is simple insurance that does not build up a cash value. The cost for cash-value insurance is substantially higher.)

Why the huge disparity? Insurance works on statistical probability. With piles of data indicating how many 50-year-olds per 1,000 will die in any given year, insurance companies set premiums figuring that the vast majority who don’t die will pay enough in premiums to cover the cost of the few who do, plus some for the insurance company’s overhead.

Insurers are great at calculating the risk of death for the “average” American, whose most dangerous activity is driving to work while talking on a cell phone, Greis said.

But many companies have little or no experience insuring individuals who climb rock walls at the local YMCA or go scuba diving in Australia. Generally speaking, they’re reluctant to add too many thrill seekers to their pool of covered individuals, just in case those dangerous activities throw their whole statistical analysis off kilter.

Comparison Shopping

Rates for high-risk activities vary widely among insurers. You can’t even count on getting the lowest rate with companies that supposedly specialize in a certain type of high-risk consumer, Humenik said. His high-priced policy was sold by a company that catered to private pilots. It wasn’t until he started comparison shopping on the Internet that he realized he could get a much better deal, buying twice as much coverage--a $2-million policy--for the same $3,500 premium.

“If I were to go to an agent, I would want bids from at least a half-dozen companies,” said David Woods, president of the Life and Health Insurance Foundation for Education. “Anyone in a high-risk situation needs to really shop their policy because the rates are all over the map.”

Humenik and Funk also stress that it makes sense to do some shopping on your own, especially if the rates you’ve been quoted appear high. The Internet makes price comparisons simple, Humenik said.

“You can get numerous quotes simultaneously. You keep digging and digging until you find something that you’re comfortable with.”

Times staff writer Kathy M. Kristof, author of “Investing 101” (Bloomberg Press, 2000), welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof @latimes.com. For past Personal Finance columns visit The Times’ Web site at www.latimes.com /perfin.