Marijuana Use and Life Insurance Underwriting Explained

Marijuana Use and Life Insurance Underwriting Explained


With the passage of the Marijuana Tax Act in 1937, a tax was established on the sale of cannabis that quickly criminalized it and classified it as a Schedule 1 controlled substance. Almost 60 years later , the state of California passed Proposition 215 in 1996 with a 56% vote to allow the use of marijuana for medical treatment recommended by a physician. Today, nearly 80% of US states have passed legislation approving the recreational or medical use of marijuana, or both, with 20 states passing approvals in just the past five years.

US States + District of Columbia

  • Approved recreational and medical use: 22 (43%)
  • Approved medical use: 18 (35%)
  • No approved use: 11 (22%)

According to a 2021 national survey conducted by the Administration of Mental Health and Substance Abuse Services, nearly 20% of adults reported using marijuana in the previous 12 months. As the legal landscape and potential social stigma surrounding marijuana use continues to evolve, life insurance underwriting is rapidly evolving. However, changes vary by insurance company and depend on the type and frequency of use. Here are several issues related to the impact of marijuana use on guaranteeing life insurance coverage.

Seven Factors

It is possible to obtain life insurance coverage with disclosure or evidence of marijuana use. However, as with many things… it depends. The main factors that determine the subscription class are:

  • Admission of use;
  • Lab results for THC;
  • Reason for use;
  • frequency of use;
  • Delivery method;
  • Age; i
  • Additional high risk history.

An insurance company will evaluate an underwriting class based on the medical history and disclosures provided by an applicant. Each risk class is designed to assess a fee or charge for a certain level of risk or life expectancy probability. An applicant’s risk class, product, age and gender are used to determine the cost of insurance for a given level of death benefit. The cost of each risk class can vary substantially at each level. The following table illustrates the percentage premium increase compared to the best available underwriting risk rating between non-smoker and smoker rates:

Marijuana Use and Life Insurance Underwriting Explained

Admission of use

Insurance underwriters do not look favorably if use is not disclosed in the written application and is instead discovered through other sources, such as lab results, medical records, or prescription drug history . If a policy is issued and a death claim is filed during the 2-year contestability period, a life insurance company can investigate the claim and potentially deny it if false or misleading statements have been made to the request On the other hand, a positive tetrahydrocannabinol (THC) lab result with a documented reason and disclosures for marijuana use can still qualify for the best non-smoker rates.

Reason for use

Medical use of marijuana is viewed more favorably than recreational use. An applicant with a valid prescription card, details of their underlying medical condition and treatment plan can qualify for the best preferred rates. However, an underwriter will also review and rate the underlying medical condition separately, which could result in a lower rating. Recreational use is acceptable for applicants where marijuana has been legalized, however, the rating class will be determined based on frequency of use.

Frequency of use

The frequency of marijuana use is one of the biggest factors determining the rating and/or offer of coverage. Light usage, defined as up to 2 times per month, could qualify for Preferred or Better rates. Average usage, defined as up to 10 times a month, could qualify for standard rates. In most cases, heavy use, defined as 25 times per month or per day, would be tabulated or denied coverage, with exceptions made for certain medically prescribed cases. Although the frequency is high, non-smoking rates are available within each classification depending on the delivery method.

delivery method

Smoking THC more than 1 time per month will incur smoker rates in addition to the designated membership class. Some carriers differentiate between smoking and vaping by qualifying vape as a non-smoking classification. Ingesting marijuana in edible form will avoid smoking ratings, and the membership class will be determined primarily by the reason for frequency of use. Additionally, the use of cannabidiol (CBD) oil has become a very popular delivery method and is different from THC.

Some of the differences between THC and CBD are:

THC

  • Controlled and psychoactive substance
  • Effects: Stimulates appetite, euphoria, drowsiness
  • Marijuana plant is used (THC content between 15-20%)

CBD

  • It is not a controlled or psychoactive substance
  • Effects: Calming, relaxing, supporting well-being, healing
  • Hemp plant is used (THC content is less than 0.2%)

Insurance companies qualify CBD oil users as non-smokers regardless of delivery method or frequency.

age

Insurers may view marijuana use for older applicants more favorably than younger applicants. In many cases, those under the age of 30 with documented or admitted marijuana use would not be able to get better rates than the standards. Applicants over this age may qualify for preferential acquisition rates subject to type and frequency of use.

Other high-risk backgrounds

Regardless of the specifics of marijuana use, the following criteria would also be considered and would typically result in a decrease in coverage:

  • Entrepreneurs, executives and employees of the marijuana industry
  • Additional current or historical alcohol or drug abuse
  • Criminal record
  • Record of driving motor vehicles with violations
  • Mental health conditions
  • Aeronautical activity

Recommendations

The underwriting manuals of each of the insurance companies have evolved substantially over the past few years regarding the use of marijuana. About five years ago it would have been impossible to get non-smoking rates with any history of marijuana use, but now insurance companies have liberalized their position a lot. However, there is still substantial variability among the major life insurance companies. For example, one major insurance company will allow usage up to several times per week to get the best rates available, while another company would be less lenient and restrict usage to once a month to get the best rate. When applying for life insurance with a history of marijuana, it is critical that your client clearly documents the reasons for use and consults with their independent life insurance professional to obtain the most cost-effective coverage.

Michael Mallick is the chair of Valley Forge Financial Group’s wealth transfer practice. He specializes in estate planning, life insurance consulting, business succession and executive benefits.

Ryley Harper is a wealth transfer consultant at Valley Forge Financial Group. He specializes in helping private business owners, high net worth families and their advisory teams with life insurance, estate planning and business succession.

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