With the passage of the Marijuana Tax Act in 1937, a tax was placed 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 by a 56% vote to permit the use of marijuana for medical treatment recommended by a physician. Today, nearly 80% of U.S. states have passed legislation approving either the recreational or medical use of marijuana or both, with 20 states passing approvals in just the last five years.
U.S. States + District of Columbia
- Recreational & Medical Use Approved: 22 (43%)
- Medical Use Approved: 18 (35%)
- No Uses Approved: 11 (22%)
According to a 2021 national survey performed by the Substance Abuse and Mental Health Services Administration, almost 20% of adults reported using marijuana the prior 12 months. As the legal landscape and potential social stigma around marijuana use continues to evolve, the underwriting for life insurance is quickly evolving. However, the changes vary by insurance carrier and depend on the type and frequency of use. Here are several issues surrounding the impact of marijuana use on securing life insurance coverage.
Seven Factors
Obtaining life insurance coverage with disclosing or evidence of marijuana use is possible. However, as with many things…it depends. The major factors that determine underwriting class are:
- Admission of use;
- Lab Results for THC;
- Reason for use;
- Frequency of use;
- Delivery method;
- Age; and
- Additional high-risk history.
An insurance carrier will assess 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 given level of risk or probability of life expectancy. 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 for each risk class can vary substantially across each level. The table below illustrates the percentage increase in premium when compared to the best available underwriting risk classification amongst non-smoker and smoker rates:
Admission of Use
Insurance underwriters don’t look favorably if use isn’t disclosed on the written application and instead uncovered through other sources such as lab results, medical records or prescription drug history. If a policy is issued and a death claim is submitted during the 2-year contestability period, a life insurance carrier may investigate the claim and potentially deny it if false or misstatements were made on the application. On the other hand, a positive Tetrahydrocannabinol (THC) lab result with a documented reason and disclosures for marijuana use may still qualify for non-smoker best 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 best to preferred rates. However, an underwriter will also review and rate the underlying medical condition separately, which could result in a reduced rating. Recreational use is acceptable for applicants where marijuana has become legalized, however, the rating class would be determined based on the frequency of use.
Frequency of Use
The frequency of use of marijuana is one of the biggest determining factors of rating and/or an offer of coverage. Mild use, defined as up to 2x per month, could qualify for Preferred or Best rates. Medium use, defined as up to 10x per month, could qualify for standard rates. In most cases, heavy use, defined as 25x per month or daily would be table rated or declined coverage with exceptions made for certain medically prescribed cases. Even if frequency is high, non-smoker rates are available within each classification depending on delivery method.
Delivery Method
Smoking THC more than 1x per month will result in smoker rates in addition to the underwriting class designated. Some carriers differentiate between smoking and vaping by qualifying vaping as a non-smoker classification. Ingesting marijuana in an edible form will avoid smoker ratings, and the underwriting class will be predominately determined by the frequency reason of use. Additionally, Cannabidiol (CBD) oil use has become a very popular delivery method and is different than THC.
Some of the differences between THC and CBD are:
THC
- Controlled substance and psychoactive
- Effects: Stimulates appetite, euphoria, drowsiness
- Marijuana plant is used (THC content between 15-20%)
CBD
- Not a controlled substance or psychoactive
- Effects: calming, relaxing, supporting well-being, healing
- Hemp plant is used (THC content is less than 0.2%)
Insurance carriers qualify CBD oil users as Non-Smokers regardless of delivery method or frequency.
Age
Insurance underwriters may view marijuana use for older applicants more favorably than younger applicants. In many cases, those under age 30 with documented or admitted marijuana use could achieve no better than standard rates. Applicants over this age may qualify for preferred to best rates subject to type and frequency of use.
Other High-Risk History
Regardless of the specific details of marijuana use, the following criteria also would be considered and would typically result in a decline in coverage:
- Business owners, executives and employees in the marijuana industry
- Additional current or historical alcohol or drug abuse
- Criminal history
- Motor vehicle driving record with violations
- Mental health conditions
- Aviation activity
Recommendations
The underwriting manuals at each of the insurance carriers have evolved substantially over the past few years as they relate to marijuana use. It would have been impossible to achieve non-amoker rates with any history of marijuana use about five years ago, but insurance carriers have now greatly liberalized their position. However, there’s still substantial variability among the top life insurance carriers. For example, one major insurance carrier will allow use up to several times per week for best available rates while another carrier would be less lenient and restrict use to once per month to obtain the best class. When applying for life insurance coverage with marijuana history, it’s crucial for your client to clearly document the reasons behind consumption and consult with their independent life insurance professional to obtain the most cost-effective coverage.
Michael Mallick is the President of the Wealth Transfer practice at Valley Forge Financial Group. 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 assisting owners of privately held businesses, high-net-worth families, and their advisory teams with life insurance, estate planning and business succession.
*This article was adapted from an article first published by the Philadelphia Estate Planning Council.