A question that comes up fairly frequently is whether a person who takes up a new hobby, not knitting, but something more daring like flying, skydiving or the like, needs to take out a new life insurance policy in order to be covered.
This is a fair and prudent question because the last thing anyone wants to do is put their family’s future in peril because they took up a dangerous hobby and didn’t check. So, just to put this into context in as dramatic a situation as I could think of, let’s say I’ve just been approved to be an astronaut.
First let’s talk about the situation where someone who already has a dangerous job or hobby wants to take out a new life insurance policy. Generally they will be approved based on their health and then assessed what is called a flat extra. A flat extra is a certain amount per thousand extra above and beyond what a sane person would pay for their life insurance. I heard somewhere, although I’ve never seen this in writing, that astronauts pay $25.00 per thousand flat extra per year. So, if I wanted $1,000,000 worth of insurance it might cost me $3000 a year for the insurance and $25,000 per year for the flat extra to cover being blasted into space.
So, what if I have an application pending for life insurance and have applied for but haven’t been approved yet to be an astronaut? Well, in this case I would have to put on the application that I was earnestly seeking to become an astronaut, and the company would approve it with a flat extra which could be removed if I failed my astronaut test.
Now we’re down to where people get confused. Let’s say I just put my $1,000,000 policy in force and a month later a friend who just won the lottery buys two tickets on the space shuttle (yes I know you can’t do that) and wants me to go. Because I took out the policy with no intent, or even wild dream that I would get to go into space, the policy covers me while I’m ripping off through the wild blue yonder at 26,000 miles per hour. There is no flat extra. All insurance policies assume that there will be changes in the future that weren’t planned, so they accept that risk. If you think about it, it all balances out. People who don’t smoke will start smoking and many who smoke will quit. People who sky dive will quit and some who don’t will start.
The last scenario took place in the incontestability period, the two year period where companies can look back and make sure you weren’t concealing risk and they didn’t overlook any. So, even though it happened exactly as I laid out, the company is justified in investigating the time table that ended up providing me the chance to go into orbit. This two year period only comes into play if I don’t make it back from my trip. If everything checks out, the claim is paid.
One more scenario. I take out my $1,000,000 policy and honestly don’t have any intention of becoming an astronaut. I’m a bean farmer and even though I like roller coasters, I don’t see any logical avenue between bean farming, thrill rides and ever going into space, so I’ve never even considered it. Then, lo and behold, in Bean Farming Monthly is an ad asking for resumes from bean farmers that are willing to cultivate beans on the space station now that the toilet is fixed. I send in my resume and get picked and now I am an astronaut. Again, there was no intent of change of occupation when I took the policy out so the policy covers me fully without a flat extra.
Bottom line. Intent at the time of application is the key to whether you are covered without paying extra for the risk. I had a customer call today who was a student pilot in the 60’s and then gave it up. He took out a policy 8 years ago and correctly answered no to aviation. His financial situation has changed and he now wants to go back and complete his training and get licensed as a private pilot. He wanted to know if his current policy would cover him as a student pilot or if he needed a new policy. His current policy fully covers him because when he took it out he wasn’t actively intending to get back to flying. No need for a new policy.