Smoking ban highlights pros and cons of smoking

With the ban on smoking in enclosed public spaces due to come into force next Sunday [1st July 2007], anyone thinking about giving up smoking should realise the benefits both to their wallet as well as their health, says leading personal finance website Find.co.uk.

Quite apart from the money you can save by not buying cigarettes, all forms of life assurance will be substantially cheaper.

For instance, a £100,000 term assurance policy providing cover for 20 years for a 35 year old smoker costs around £13.50 a month (£13.23 with AA Insurance Services, £13.40 Sainsbury’s Bank or £13.45 Marks & Spencer Money).

A 35 year old male non-smoker, by contrast, looking to buy the same level of cover with the same term, would only have to pay around half that much each month (£7.90 Sainsbury’s Bank, £7.95 Lutine Assurance and £8.00 Marks & Spencer). That’s a saving of £63.96 a year or £1,279.20 over 20 years, excluding interest.

But remember, you will have had to of quit for a full year before being regarded as a non-smoker by an insurance company. If you are smoker and have an existing policy, you could approach your insurer after one year of quitting to ask for non-smoker rates.

If you are thinking of cheating in order to save money, you should be aware that insurers can ask you to take a ‘cotinine test’ – which can detect nicotine in the saliva, blood and urine.

For those unable to quit smoking, the good news is that when you come to retire, your addiction to nicotine will actually benefit you if you are buying an annuity. This is because insurers pay higher annuity rates to smokers because they have a shorter life expectancy than non smokers.

For instance, at the time of writing the best annuity rate for a 60 year old male annuitant in normal health looking to buy a level income (payable in advance and with no guarantee) with a £10,000 fund was £638.64 pa from Norwich Union, compared to £742.90 pa for a smoker of the same age (offered by Just Retirement). That’s an increase of nearly 16.50 per cent.

Matt Ward, head of pensions & wealth management at independent financial research company Defaqto, says: “This shows just how important it is to shop around for an annuity which meets your individual needs and also takes into account lifestyle or health issues.”

When it comes to buying an annuity, insurers will class you as a smoker if you have smoked at least 10 cigarettes a day for 10 years.

The other good news is that once you have bought a smoker’s annuity, you can still give up smoking without it affecting your annuity payments, because annuities are fixed contracts for life and cannot be altered once purchased.

Kate Marsden, marketing director at Find.co.uk says: “People are often reticent about admitting to smoking when they are buying an annuity, thinking that it will count against them. But in fact the effect is the exact opposite of when you are buying life assurance, so smokers should be sure to declare their habit to their financial adviser and then, of course, try to quit as soon as possible!”