As of today, 23 states and the District of Columbia currently have laws legalizing marijuana in some form. Colorado, Washington, Washington D.C., and now Alaska and Oregon have also approved recreational use. Legalization might have been unthinkable a generation ago, but the world changes, and we must change with it. So, how should the life insurance industry respond to legalized marijuana? Does using marijuana make someone a poor insurance risk? As chief underwriter for Penn Mutual, it is my job to understand how changes like legalizing marijuana affect our business.
Penn Mutual has not yet set out a position on legalized marijuana, but here are some of the things we might consider as we establish our criteria.
Health Risks of Marijuana
Just because it’s now legal doesn’t absolve people from the health impacts of marijuana use. Smoking tobacco is legal, but we all understand the profound health risks involved, something that is reflected in the premiums charged for life insurance.
Marijuana use is not without its share of health risks. For example, evidence indicates that long-term use can lead to addiction or dependency according to the criteria for dependence in the Diagnostic and Statistical Manual of Mental Disorders.
Context and Frequency
Every insurance company is different, each with their own underwriting guidelines, but in general insurance underwriters want to look at the whole person and not just one specific issue. Using marijuana would just be another factor to consider and underwriters would want to know a bit more about the context. Is the use purely recreational? Is it being used for medicinal purposes? How often is the person using it? Does it affect the person’s ability to hold a job? Have they been treated for drug abuse? Have there been any motor vehicle related issues?
Medical Use of Marijuana
Many people are using marijuana for medical purposes. There’s been research that shows that marijuana helps with glaucoma, nausea, chronic pain, multiple sclerosis and other medical problems. From an insurance perspective, this brings up a whole new set of issues. If someone is using marijuana to alleviate the nausea stemming from chemotherapy, underwriters are likely to be much more concerned about the impact of the cancer on the risk assessment than about the marijuana use.
Smoking versus Ingesting Marijuana
There is a movement away from the smoking of marijuana toward ingestion of it in candy or food. However there are risks from the marijuana even if ingested. For example, edibles have been associated with overdose.
Testing for Marijuana Use. The test for delta-9-tetrahydrocannabinol (THC) is very specific to marijuana. Most insurance companies don’t routinely test for it, but there are some that do. It just depends on the insurance carrier, their comfort and experience levels and their willingness to pay for the test.
Misrepresentation on the Application for Insurance
If someone is using marijuana, they should be truthful about it when they apply for insurance. If their insurance carrier learns of an un-admitted medical history and determines misrepresentation occurred, there could be adverse impacts to the life insurance policy such as rescission or denial of a death claim.
We understand the sensitive nature of asking an applicant about drug or alcohol use; however, these are risk factors that must be considered. We protect confidential medical information throughout the underwriting process under HIPAA laws.
Finally, while a few states have legalized marijuana, the Federal government still considers it illegal, and it is the Federal government that runs the banking system. People are finding it difficult to put the profits from their marijuana dispensaries into a U.S. bank. Selling marijuana is currently an all-cash business, and if an insurance company accepts money from such a business to fund an insurance policy, it could potentially be in violation of Federal money-laundering laws.
At this point, it is unclear how the life insurance industry will handle legalized marijuana. In some ways, it depends on how society as a whole approaches marijuana. If a broad portion of the people applying for insurance are using legal marijuana, then the underwriting and pricing of our policies would obviously need to reflect that shift. We, as an industry, always need to stay on top of changes in society, in laws, and in underwriting best practices.
Underwriting is about determining risk, and we don’t look at one factor and give that factor significant weight over the other factors. Underwriters look at the complete profile of the applicant — their height and weight, their driving record, their lab work, statements from their physicians, and any hazardous activity — flying planes, scuba diving, things of that sort. Marijuana use, legal or otherwise, is just one factor among many to consider.
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