Higher Annuity Payments for Smokers

Occasionally I read articles and information that, while not exactly related to business insurance, provides a good illustration of how insurance works. This is one such story I came across in the Insurance Business Review.

Partnership Assurance, an annuity company based in the United Kingdom, has announced the creation of "The Smokers' Annuities." These are retirement annuity products tailored to smokers.

An annuity is a product where a fund of money is paid out over time. The payments are higher than if one were to deposit the account in an interest bearing savings account, for example. Why the higher rate and what is it based upon? It is based upon mortality charts and longevity calculations, similar to life insurance. The annuity company, typically an insurer, is playing the statistics and can statistically show that the recipient will die before a point where payouts exceed the value of the lump sum.

So what does the Smokers' Annuity do? It pays a higher monthly rate to smokers. Why? Well as reported by the IBR, the Chairman of Partnership Assurance states, "It's an inescapable fact that the vast majority of smokers won't live as long as people who don't smoke." Therefore, higher regular payments can be made to the recipient because, well, they do not live as long as non-smokers.

Just as annuity payments are higher to smokers, health insurance and life insurance rates are higher for smokers. One of the ways to reduce insurance premiums is to adopt health specific changes in your workplace. The most important of these changes can be the implementation of a smoking cessation program.