Smoking is injurious to Health. Despite knowing this, a number of people continue to smoke. Smoking has been linked to various health hazards such as cancer. A number of us ignore the health hazards of smoking. Since I am not a medical practitioner, I wouldn’t comment on how smoking can harm your health.
In this post, I will take a slightly different tangent and try to assess the financial impact of smoking.
How will I do it?
Cigarettes do not come free of cost. If you smoke, you have to bear the cost of cigarette. Moreover, as a smoker, you end up higher premium for life insurance policies.
During the analysis, I will calculate the money that you could have saved had you been a non-smoker. The savings from lower life insurance premium and zero cigarette cost can be invested to generate corpus for retirement (or for any other goal)
What about Health Insurance Premium?
I have considered the higher premium for life insurance plans but not the health insurance plans.
In case of health insurance policies, the insurers do not explicitly state that they will load the premium for smokers. You may not have to pay higher premium just because you are a smoker. It depends on underwriting policy of the insurance company.
However, the insurers typically ask all the smokers to go through medical tests. If smoking has resulted in any health complication, the insurer may take an adverse view of your application.
However, to give smokers a benefit of doubt, I will not bring premium for health insurance policies into consideration.
Analysis
I will limit any analysis to savings on life insurance premium and the cost of cigarettes. The difference in life insurance premium for a smoker and non-smoker can vary between Rs 3,000-5,000 per annum for Sum Assured of Rs 1 crore).
In this analysis, I have considered premium difference of Rs 4,000 per annum. I have assumed that you can invest this amount every year in equity funds. I have assumed that equity funds will return 12% p.a.
The cost per cigarette has been assumed at Rs 10 per stick and assumed to grow at 10% p.a. So, if you smoke 2 cigarettes per day, you will end up spending Rs 7,300 in the first year, Rs 8,030 in the second year and so on. I have assumed you can invest this money in equity mutual funds and earn returns till retirement.
This is a very simplistic representation but I hope you get the idea.
If you can smoke 6 cigarettes a day, you might be compromising on a corpus that will be approximately Rs 1.47 crores by the time you retire. So, we are looking at a really significant cost.
You could have utilized this money better. I have not even considered a potentially higher health insurance premium and the health risks that smoking poses.
So, if you spending a lot of time on reviewing your finances, you feel you are falling short on retirement corpus. You know where to cut corners.
Smoking is injurious not just your health, but your wealth too.
PersonalFinancePlan Take
Quit Smoking!!!
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