News & Research

Life Insurance and Cannabis: No Longer Treated Like Tobacco

cannabis • January 31, 2019

Cannabis consumers used to pay double for life insurance. Now brokers view them as a good investment.

A lot of people in Canada have long considered their use of cannabis as a deal-breaker when it came to life insurance.

If they were honest about their consumption of cannabis on their life insurance application, their premiums were automatically hiked, often beyond affordability.

If they were dishonest, the dreaded urine test threatened to expose their falsehood.

Back in the day (before 2016), life insurance providers in Canada simply lumped cannabis consumers in with tobacco smokers.

Whether you smoked cigarettes or used cannabis, the judgment by the underwriters of life insurance policies was the same:

“High Risk.”

Cannabis use and smoking tobacco cigarettes were once considered indistinguishable from one another by the life insurance industry.

Those who admitted to using cannabis on their life insurance applications were stuck with the same sky-high premiums as smokers.

Fortunately, today the life insurance industry’s policies towards Canadian cannabis users have changed.

As the legalization of recreational, adult-use cannabis in October 2018 approached, some of the large life insurance companies suddenly started to reverse their categorization of cannabis as a risk factor identical to smoking tobacco.

In 2016, huge insurance companies like Sun Life stopped equating cannabis consumption with tobacco use.

Today, the majority of Canadian life insurance providers have adopted policies similar to that of Sun Life, whereby cannabis users can be viewed as “Low Risk.”

The Insurance Industry Doesn’t Want to Lose Nearly Half of its Potential Customers

The stodgy, conservative life insurance industry has never been known for having a soft view on cannabis.

But if there’s one thing the insurance industry is particularly good at, it’s using data to make a lot of money.

In 2018, 41% of Canadians between the ages of 18 and 34 years indicated they consumed cannabis within the previous year.

The insurance industry knows nearly half of the young adult demographic could be scared away from applying for life insurance under its traditional policies.

By reducing cannabis to the status of a “Low Risk” behaviour rather than a “High Risk” lifestyle factor, insurance companies can remain competitive by attracting young clients.

Rather than potentially pricing-out nearly half of the young-adult market from buying life insurance, many insurance companies now offer normal premiums for cannabis users.

Which is understandable from a business perspective, since insurance firms see the population of younger Canadians as their next generation of long-term clients.

If over 40% of potential new clients are in danger of being unable to afford the price of premiums, the market shrinks considerably.

Insurers Now Charge Lower Premiums for Cannabis Consumption Compared to Smoking Tobacco

This change has had a major impact on the premiums paid by cannabis users.

Insurance professionals recognize the differences between today’s life insurance landscape compared to just 5 or 10 years ago, when all smokers got the same rate whether it was cannabis or tobacco.

Insurance premiums are calculated according to complex algorithms taking in a whole range of factors.

But it’s smoking tobacco that is viewed as the most obvious lifestyle risk.

According to Sun Life’s online life insurance calculator, the monthly premium on a basic term life insurance policy with $500,000 in coverage for a 40 year old healthy Canadian male non-smoker is $35 to $50.

However, if the man is a smoker, the monthly cost for him to carry the exact same amount of life insurance coverage is calculated at $79 to $116 – more than double compared to the non-smoker’s premium!

Risk is often associated with reward, but when it comes to life insurance, it’s the opposite.

And since smoking tobacco and using cannabis were considered synonymous until recently, cannabis users had to pay the same additional insurance premium as smokers.

Light to Moderate Cannabis Use Is the Limit for Lower Premiums

These new cannabis-friendly life insurance rules do come with limits on how much a person can consume and still be considered low-risk.

The big insurers set the standard for the entire industry, and generally allow for a person who consumes two joints or less per week to be viewed as low-risk.

If you’re one of the nearly 700,000 Canadians who use cannabis on a daily basis, you’re still going to get hit with the steep smokers-rate premiums.

But if you’re one of the 2.5 million Canadians who report using cannabis one to three times per month or less, you qualify for the lower low-risk premiums.

What About Edibles and Vaping?

One of the concerns regarding the life insurance industry’s past and present policies towards cannabis is a lack of distinction between smoking and other potentially less harmful methods of consumption.

Although edibles and concentrates are not yet available through the legal market in Canada, in Colorado (where recreational adult use has been legal since 2012) they are wildly popular.

Nearly one third of overall cannabis demand in that state is dedicated to edibles and concentrates.

The Canadian life insurance industry doesn’t suggest that some non-smokable forms of cannabis consumption could have a lower risk for causing harm than other methods.

Which could be problematic once the full range of legal products is established, when one third of Canadian’s consumption could potentially be in the form of edibles, tinctures, topicals, or vapes.

For now, those methods are not distinguished by the insurance industry from smoking joints, pipes, or bongs.

In order for that to change, the insurance industry will need to start collecting data about the different rates of risk and harm associated with various specific methods of cannabis consumption.

UPDATE (June 27, 2019): In an article entitled “Pot edibles could lead to higher life insurance premiums”, the CBC reports that:

“Canadians looking to enjoy soon-to-be-legalized pot-infused edibles could get hit with higher insurance premiums — depending on the size of their appetites.

Many insurers no longer treat cannabis users as cigarette smokers — who pay much higher premiums due to the high-risk activity — provided there is no tobacco or nicotine in products they use.

The shift came in recent years as Canada moved to legalize pot for recreational use, starting with dried flower, oils, plants and seeds.

However, to avoid paying more, cannabis usage must stay below a set number per week and many insurers count any kind of pot, whether it is smoked or sipped or chewed.

The threshold ranges from two to four cannabis usages per week, depending on the insurer…”

Workplace Insurers are Offering Coverage for Medical Cannabis

Another positive development within the insurance industry has been the option to add coverage for medical cannabis to a company’s employee benefits plan.

Depending on the chosen benefits package, employees who are prescribed medical cannabis can have from $1,500 to $6,000 of their costs covered each year.

Here’s a YouTube video from CBC News discussing the optional medical cannabis extension offered by Sun Life to employers:

Life Insurance is Within Reach for Canadian Cannabis Consumers

For the first time in many years, Canadian cannabis users are now able to purchase life insurance and not get hit with the steep premium increase reserved for smokers.

As the stigma associated with cannabis use starts to subside, insurance companies are recognizing the need to accommodate the millions of Canadians who consume it.

Cannabis users are like everyone else: they want to make sure their families are taken care of if anything happens to them.

Now they can sleep better at night knowing they have life insurance coverage – and knowing they can afford it!

Do you have any experience as a cannabis user seeking life insurance?

If so, let us know in the comments below!

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