Quit Smoking, Save Cash

[Thomas3.20.2010]

Those who give up cigarettes may see some of their financial obligations go up in smoke.Some of the benefits are immediate: with higher taxes and fees on cigarettes pushing the cost per pack upwards of $10 in some states, a pack-a-day smoker could expect to save almost $5,000 in a year. But over the long-term, experts say quitting can cut life insurance premiums nearly in half, and also generate cash incentives of $500 or more from insurers and employers. Similar savings can be had for losing weight or getting fit, but those can vary based on your progress. Smoking status is easier to classify. "It's generally pretty black or white [on forms]: you're a smoker or you're a nonsmoker," says Steven Weisbart, chief economist for the Insurance Information Institute. That means former smokers can often get the same great prices as people who have never smoked.

Of course, quitting isn't an easy resolution to stick to. A study by Nicorette released last year found that the average smoker takes five years and seven attempts to kick the habit for good. Smokers struggling to quit may be swayed by these additional ways to trade ash for cash.

Life insurance

A smoker who quits could eventually see his or her premiums drop 10% to 40%, depending on age and overall health, says Kieran Mullins, vice president of underwriting for MetLife. The key word there: eventually. Most insurers require that a person not have smoked for at least a year to obtain non-smoker status, says Weisbart. It's not uncommon for insurers to require terms of at least two years, either -- and former smokers appealing for a revised policy should expect to provide blood and urine samples, as well as undergo a full physical, to prove their case.

Health insurance

Former smokers who purchase health insurance independently could see their premiums drop by roughly 30% after at least six months of quitting, says Weisbart. Those who get health insurance through an employer may also see preferential rates -- according to consulting firm Aon Hewitt, 6% of employers impose a penalty for smokers. Wal-Mart, for example, announced last fall that starting in 2012, employees who smoke could face annual penalties of $260 to $2,340 on their health insurance.

Health costs

The American Cancer Society estimates that smokers start to see improved health within 20 minutes, when heart rate and blood pressure drop. By five years out, they have the same risk for stroke or cervical cancer as that of a lifelong non-smoker, and have cut their risk in half for coronary heart disease and cancers of the mouth, throat, esophagus and bladder. "The healthier you are, the less likely you are to end up in the doctor's office," says Tom Harte, a vice president for the National Association for Health Underwriters. That's valuable as more employers move to high-deductible health insurance plans, he says. Lower medical bills means fewer out-of-pocket costs toward plan deductibles, which now often top $1,000. It can also let consumers roll over more funds in such plans' associated health savings accounts, which put pre-tax dollars toward qualified medical expenses.

Homeowners insurance

Nonsmokers may be eligible for a discount of roughly 5% on their policy. "Certainly houses burn down because people smoke, but I can't imagine that actuarially it's significant," says Scott Simmonds, a Saco, Maine-based insurance consultant. "I think it's mostly a marketing ploy." Unlike with health and life policies, insurers usually take an applicant's word as proof of their non-smoking status, he says, which means even a recent non-smoker could claim the deal.

Auto insurance

It's not as common a perk, but some auto insurers also offer a 5% discount to non-smokers, Simmonds says. The theory: without a lit cigarette in hand, nonsmokers have one less distraction to take a hand off the wheel or their eyes off the road.

Employer incentives

A number of insurance companies and employers offer cash and discounts to quit smoking, says Harte. Arizona, for example, will reimburse state employees for up to $500 in smoking cessation medications, including gum and patches. But there's often fine print. In Aon Hewitt's latest employer survey, 3% offer some financial incentives for participating in a tobacco cessation program -- but two-thirds of those only hand over the cash for those who stay smoke-free. Public relations firm Edelman, for example, pays a $2,000 bonus in its quit-tobacco challenge for employees after they stay smoke-free for six months. To keep it, they must stay smoke-free for another six months thereafter.