Marijuana: Life Insurance
A Green Shift
U.S. life insurers’ attitudes toward marijuana are evolving, with some carriers reevaluating their underwriting protocols. But the majority remain conservative and charge smoker rates.
- Jeff Roberts
- April 2019
- Tobacco Rates: The majority of U.S. life insurers charge smoker rates to marijuana users.
- Legalization Wave: Ten states and Washington D.C. have legalized recreational cannabis. More than 30 states approve some uses of medical marijuana.
- Public Acceptance: The 41 million American marijuana users in 2017 were a 9% increase over 2016 and a 58% increase over 2008.
The agent of last resort found them by accident.
Chris Abrams had offered advice that called to marijuana users, posting an article on his agency website for those among them struggling to get approved for life insurance.
Then came the flood.
Emails. Phone calls. Messages through the website.
They arrived from throughout the country, from states that had legalized cannabis and states that had not.
Abrams inadvertently discovered eight years ago that there is considerable demand from marijuana-using consumers eager to obtain life coverage. And he uncovered a customer segment for his own business he didn't realize even existed.
“I was getting all of these people contacting me for help who use marijuana,” said Abrams, whose MJ Life Insurance is “a last resort” for cannabis users who have been declined. He launched it as an offshoot business three years ago from his San Diego-based Abrams Insurance Solutions.
“It's definitely a growing niche. And I expect it to keep growing as [marijuana] gets legalized across the country.”
Demand has only risen since he posted that article, as marijuana continues to gain mainstream acceptance in the United States. The life insurance industry is slowly evolving to cover the needs of recreational and medical users.
The shift has been driven by changing attitudes among the American public, increasing data on marijuana's health effects and a cascade of legalizations at the state level.
“It's transitioning as we speak,” Abrams said. “What's starting to happen is these companies are updating their guidelines and not necessarily charging tobacco rates if you use marijuana.
“Some companies will still decline you. The majority of U.S. life insurers will charge you tobacco rates. And then there's a handful of companies that are a little bit more progressive that will give you non-tobacco rates.”
That translates into much smaller premiums, with smoker rates running two-to-three times more expensive.
Although there is a definitive shift, most insurers remain conservative in their stance with occasional-to-moderate cannabis users.
“It's not an issue to get life insurance if you use marijuana,” said Jeff Root, founder of Rootfin Life Insurance Services, based in Austin, Texas. “It's a shift in that we've seen it in underwriting guidelines.
“Most of them take it, but they take it at a smoker rate, which in my opinion means they don't want the business.”
A very-real stigma remains as the federal government still classifies marijuana as a Schedule I drug. Grouped with heroin and LSD and a classification above cocaine and fentanyl, it is defined as having high potential for abuse and no accepted medical application.
That could eventually change, as two House of Representatives bills were introduced in March that would allow states to establish their own laws without federal interference and would require the U.S. government to study the impact of state legalization policies.
However, a small number of insurers still reject applicants who test positive for its active chemical, tetrahydrocannabinol (THC), or reveal their use on an application. Some carriers decline to even address the topic publicly.
Best's Review requested interviews with two life reinsurers and three primary life companies. All five did not respond or failed to make someone in its life operation available for comment.
“I can tell you that I run a lot of websites that talk about marijuana use and life insurance and mention some companies,” Root said. “And I've had a few companies say, 'Hey, take down our name from this article. We don't want to be associated with marijuana.'”
There is no industry stance or best practices on the issue among U.S. carriers, said Jack Dolan, a spokesman for the American Council of Life Insurers. Each company determines the criteria it uses for its own underwriting.
However, as the number of marijuana users grows—or at least those now admitting consumption—so does that segment's demand for life coverage.
Carriers in the Canadian market have almost uniformly offered non-smoker rates since 2016, two years before the nation legalized recreational use.
Some U.S.-based insurers, such as Prudential and Lincoln Financial, have been offering non-smoker rates even longer. And industry observers view it as inevitable that other American insurers eventually will follow their lead given the sizable market.
The fear of losing business in an age of stagnant sales growth and stiff competition is a powerful motivator, according to broker Lorne Marr of greater Toronto-based LSM Insurance.
“It will happen pretty soon,” he said. “A lot of [Canadian] companies have U.S. operations like Sun Life. They're going to see the data in Canada and think, 'It makes sense to do more business, without losing any money underwriting policies.'”
It is a bit of a misnomer that anyone smoking marijuana can get coverage at non-smoker rates. They do look at other variables. One is how much you smoke. … A lot of the real regular users are using more than [twice per week], so that may disqualify them from the non-smoker rates.
A Cresting Wave
Momentum has been building for years.
Widening acceptance and spreading legalization have driven increasing use. It started in earnest in 2012 when Colorado and Washington became the first states to legalize recreational marijuana.
Ten states and Washington D.C. have now legalized cannabis. Illinois, New Jersey and New York could push that total to 13 in 2019. Thirty-three states have approved some uses of medical marijuana, and another dozen or so states have decriminalized possession.
“There's definitely an increase, and it will keep increasing,” Root said. “There's just more people using it now, and with that, there's more people using that need life insurance.
“It's just going to keep getting bigger.”
More than 14% of American adults used marijuana in 2017 and nearly 9% had used in the previous month, according to a 2018 survey published in the Annals of Internal Medicine.
The 41 million American users in 2017 were a 9% increase over 2016 and a 58% increase over 2008, according to the most recent National Survey on Drug Use and Health. Theoretically, all need life insurance.
It's not just men and the young. Consumption by women almost doubled between 1984 and 2015 to 10.6% and use among men and women 50 to 59 increased 2,220% and 7,200% respectively since 2005, according to a 2017 study by the Public Health Institute.
Smoking continued to be the most common manner of consumption, although those who live in states where recreational use has been legalized were more likely to consume edibles or vape.
One in five residents who live in states where recreational pot is legal reported using marijuana in the past year.
Meanwhile, nearly every national poll finds marijuana acceptance rates of more than 60% and rising.
Support builds with each successive generation. Three-out-of-four millennials, 63% of Gen Xers and 54% of baby boomers approve of marijuana use, according to a 2018 Pew Research Center survey.
“Getting legalized in more and more states around the country, people are coming out of the closet a little bit and not so afraid to admit using it,” Abrams said, “especially when they find out they don't get in trouble if they put it on their life insurance application.
“It does seem to be loosening up more and more, with people talking openly about it. It's not as big a deal as it once was, especially that it's getting legalized recreationally around the States.”
Yet only 29% of underwriters Munich Re surveyed at the 2015 Association of Home Office Underwriters annual conference classify marijuana users as non-smokers.
And it's almost impossible for those who work in the cannabis industry to get approved for coverage.
Root said he could not find a single carrier among at least a dozen he tried that would supply cover for a client who cultivates marijuana and wanted to offer life insurance to his employees.
“If you grow marijuana. If you sell it. If you distribute it or have any ownership in a company that does any of that, you can't get business life insurance,” Root said. “Nobody will cover that right now. If you're growing it, it can be dangerous. People go and steal it. It's not safe.”
With acceptance and use rising, a possible model the U.S. life industry could follow lies just north of the border. (See sidebar.)
It’s definitely a growing niche. And I expect it to keep growing as [marijuana] gets legalized across the country.
Abrams Insurance Solutions
Change is on the horizon.
But no one knows exactly how far off it is.
Obstacles such as a dearth of long-term research on cannabis' medicinal uses and health effects due to its classification around the globe as an illicit drug have slowed underwriting changes.
“They will evolve as more studies come out,” Root said. “I just think they don't have the information actuaries need to really make that call.
“Carriers will get looser and looser with their underwriting guidelines on marijuana because of all the studies that I see at least.”
Although most companies do not classify recreational use as illicit activity, even progressive carriers view frequent consumption as a red flag, similar to problem drinking.
Brokers and agents have become adept at finding insurers that accept the risk. A few in particular were named repeatedly because they offer non-smoker rates.
Prudential and Lincoln were mentioned most frequently. A Lincoln spokesman said cannabis is not treated as a tobacco product in its underwriting guidelines, hence it offers non-smoker rates to users.
In a statement, Prudential said, “Cannabis users generally are insurable for life insurance whether it is being used recreationally or medicinally. We consider the frequency of use in admitted recreational users with the possibility of standard non-smoker rates for infrequent users. More frequent users may face increased rates or are not offered coverage.
“For those using cannabis for medicinal purposes, we evaluate the medical condition that is associated with the marijuana prescription. As states continue to legalize the use of marijuana and prevalence increases, we will continue to monitor closely.”
Brighthouse was also cited multiple times. A spokesman confirmed that it does not classify marijuana users as smokers. However, it may rate heavy users that way or even decline them based on the severity of their use.
Brokers also named AIG and Mutual of Omaha.
The key questions for applicants are how frequently they consume marijuana and whether for medical or recreational purposes.
“It's all based on how much you use,” Root said. “The companies that do take it, as long as it's not daily use, you're good.”
Nearly all life applications ask customers if they use and how often. Most carriers, but not all, test for THC in their medical exams.
Many insurers view smoking marijuana recreationally twice a week or eight times a month as the threshold to still offer non-smoker rates. Every carrier will generally decline daily users.
“It is a bit of a misnomer that anyone smoking marijuana can get coverage at non-smoker rates,” Marr said. “They do look at other variables. One is how much you smoke. Most of the companies are two joints [a week].
“A lot of the real regular users are using more than that, so that may disqualify them from the non-smoker rates.”
But there are a handful of smaller companies that offer policies that don't ask about marijuana, Abrams said. They are options for daily users.
Another potential solution is automated policies. Abrams said applicants traditionally have gone with medically-underwritten coverage, but that is changing as automated underwriting becomes increasingly popular.
Sagicor, a life insurer and financial services company with business in the Caribbean, Latin American and the United States, recently updated its guidelines to offer applicants non-tobacco rates in its automated underwritten policies, provided they do not use marijuana more than eight times a month.
However, some view the accelerated route with caution. They advise clients to pursue medically underwritten policies to ensure no issues arise through the contestability period. There is also the higher premiums to consider.
Unlike recreational cannabis, medical marijuana is underwritten based on the underlying condition and its severity, not the consumption itself.
“The main difference between recreational use and medical marijuana is with the card, it's not the marijuana that they rate, but what it's treating,” Abrams said. “If you're in a state where it's legal and you have a medical marijuana card, the life insurance company doesn't care about the marijuana, which is just another medication. It cares about what it's treating.”
Root said some companies still offer the best rates for medical use.
“You can still qualify for preferred-plus, non-smoker with some companies if you have a medical marijuana card,” he said.
But other factors do come into play.
Underwriters closely scrutinize driving records, medical histories and other medications the user may be on. An applicant with a history of driving while impaired would raise a red flag. So would someone also taking opioids or who had past issues with alcohol or hard drugs.
“Marijuana is not as severe a drug as cocaine or even alcohol,” Marr said, “but if they're not able to control their alcohol consumption, there's a good chance they're not going to be able to control their marijuana consumption.”
Depression is another warning sign. “They may underwrite someone differently even if just smoking one joint a week, if they do that in combination with certain mental health issues,” Marr said. “Someone who is suffering from depression plus using marijuana, they'll factor the marijuana into the underwriting. It could be making a condition worse.”
And cannabis and driving has long been a concern. That fear has grown as several states with legalized marijuana have witnessed a rise in car accidents.
Last year, the Insurance Institute for Highway Safety reported 5.2% more car accidents were reported to police in Colorado, Washington and Oregon—three states that had legalized recreational marijuana—than neighboring states.
A second IIHS study estimated insurance collision claims in those states were 6% higher.
“A DUI, whether it be from drinking or marijuana, would definitely affect your rates or make it impossible to get coverage,” Abrams said.
They tend to be discreet.
They prefer to reach out through digital channels.
And the customers seeking life insurance who use marijuana are well-educated on the topic. They know they need guidance to navigate the various insurers given some companies' conservative stances, brokers said.
The complex regulatory situation—with some states legalizing medical marijuana, others approving recreational use and still others decriminalizing it, juxtaposed with the federal ban—leave insurers cautious.
But the more states that legalize cannabis, the larger the niche grows.
Abrams' marijuana-focused business, MJlifeinsurance.com, now attracts about one-third of his overall clients, he estimates. Most are first-time buyers looking for guidance. A smaller portion worked with another broker and were rejected because of their use.
“So they need someone to navigate the insurance world and figure out who to apply with,” Abrams said.
He created the offshoot because customers feel more comfortable coming to an expert with dedicated knowledge of their needs.
“There's still a stigma attached to it, even though it is legal in some states,” Abrams said. “Marijuana is still illegal at the federal level. That definitely affects people's judgments in what they're willing to share.”
Users are legally protected in admitting use when applying for life insurance, regardless of federal laws. The Health Insurance Portability and Accountability Act (HIPAA) ensures the confidentiality of the process.
Like Abrams, Marr's LSM Insurance specializes in the hard-to-insure market. It also created one of the first life insurance websites in Canada, another reason he attracted the niche, he said. It makes up about 10% of his customers.
Root says marijuana users are not a significant part of his business, but he hears monthly from those consumers. The reason is they still find it challenging to find affordable coverage.
A Model in the Great White North
Marijuana users have become a target audience, at least in Canada.
TV commercials aim to reach them. Radio spots pursue them as well.
And there are blasts from life insurers to brokers, reminding them of the coverage options they offer those consumers.
Aggressive marketing by Canadian carriers, such as Canada Protection Plan, is just one example of how far the industry has evolved on the issue of cannabis.
They want to get the message out that they not only underwrite users, but at the same rate as non-smokers, based on criteria.
“A lot of the companies are quick to promote it because everyone may not know about it,” said broker Lorne Marr of greater Toronto-based LSM Insurance. “Canada Protection Plan does a lot of no-medical exam and hard-to-insure people, and they offer non-smoker rates for up to four joints a week.”
Canada has been a pioneer when it comes to marijuana, and its life industry offers a model in how U.S. carriers could handle coverage for users.
The nation legalized medical use in 2001. The approval of recreational use went into effect last year.
But Sun Life and BMO began offering non-smoker rates to users in 2016. The vast majority of Canadian carriers soon followed. It reversed the long-standing policy of charging smoker rates that could triple premiums.
The inevitability of legalization and growing acceptance drove more lenient underwriting.
“They knew legalization was coming,” Marr said. “But even before it was legalized, most of the insurance companies started treating them as non-smokers, up to a certain amount—usually it's two joints a week.
“They're more comfortable now underwriting marijuana than they would have been eight or nine years ago.”
The insurers were also motivated by a growing pool of health data that did not exist a decade ago, finding that marijuana does not pose the same significant risks as tobacco.
The World Health Organization does associate several health risks with the drug, including various cancers (mostly through smoking cannabis), bronchitis and cardiovascular issues such as stroke as well as potential links to depression, anxiety and suicidal behaviors.
But marijuana is also prescribed to treat glaucoma, epileptic seizures and reduce the pain of multiple sclerosis, arthritis and Parkinson's disease, among other uses.
However, the biggest motivator may just have been the fear of scaring off a growing segment with high premiums.
“You're going to lose customers. That's a driver,” Marr said. “And once Sun Life started doing it, it puts you in a bad position if they're doing it and you're not.”
Insurance companies in Canada do not measure the size of a joint or edible, although this is likely to change in the future, Marr said.
For now, most Canadian insurers consider an edible to be the equivalent of one joint and provide cover for those users at non-smoker rates.
However, Canada Protection Plan allows for unlimited consumption of edibles at non-smoker rates, but charges tobacco rates to those who smoke more than four times a week.
Sun Life even started covering medical marijuana in February 2018 in its Canadian group health benefit plans. It requires employers to pay a premium, and covers use only as a last resort for a handful of illnesses.
The decision was driven by interest from its clients and the rising importance medical marijuana plays in treating and managing pain for people with cancer, multiple sclerosis and rheumatoid arthritis among other conditions, CEO Dean Connor said at the time. Sun Life did not respond to an interview request.
Other insurers did not follow as swiftly as they did in charging non-smoker rates two years earlier. Some in the Canadian industry have concerns over the steep cost of medical marijuana, which can be higher than even pharmaceuticals.
Marr estimates marijuana users make up about 10% of his customers. Five years ago, “it was probably under 1%, but there was probably a lot of people smoking marijuana and just not saying anything.
“There's definitely more people admitting they're using marijuana,” he said. “It's allowable now. And since it's allowable, they might as well be truthful on the application. And there's just less of a social stigma.”