A few weeks ago, Derek Peterson got a letter from Mutual of Omaha, turning him down for life insurance.
“Our decision was based on,” the letter said, then trailed off (Monty Python-style) and picked up in all caps:
WE HAVE DISCONTINUED THE PROCESSING OF YOUR APPLICATION FOR INSURANCE DUE TO COMPANY POLICY. WE CANNOT ACCEPT PREMIUM FROM INDIVIDUALS OR ENTITIES WHO ARE ASSOCIATED WITH THE MARIJUANA INDUSTRY.
Peterson is indeed associated with the marijuana industry. He is the chief executive officer of Terra Tech, a publicly traded pot company based in Irvine, Calif.
But what he had applied for was a personal policy, to be paid for with his own money, to protect his family in the event of his death.
“That’s what was insane to me,” said Peterson, who is now shopping at other insurers. “That just felt really discriminatory and purposeful.”
A spokesman for Mutual of Omaha declined to comment on the denial, saying the insurer’s underwriting guidelines are proprietary.
The legalization of marijuana1 is creating headaches not just for new marijuana businesses such as Terra Tech—which already have serious trouble paying taxes and getting bank accounts—but also for people who work in the booming industry, as well as for those who don't. Even in states like Colorado that have legalized recreational pot, employees can be fired for using the drug on their own time. Landlords aren’t sure how to handle pot-smoking tenants. So insurers and other financial services companies are mostly ad-libbing.
Insurers may view any association with marijuana as an indication of a “risky lifestyle,” not unlike skydiving or race car driving, said Loretta Worters, a spokeswoman for the Insurance Information Institute, which is funded by insurance companies to provide information about the industry.
“The problem from a life insurance underwriter’s point of view is that, unlike tobacco, there isn’t a lot of data available to assess the risks of coverage for marijuana users,” Worters said. While some insurers will automatically deny coverage to marijuana users, others will simply charge them a higher premium, as they would a smoker, she said, while still others “tolerate an occasional user" without imposing any premium penalty.
Beyond the health concerns, there’s still the question of marijuana’s legality. The federal government, together with states, regulates banks, insurance companies, and other financial companies, and still classifies marijuana as a dangerous drug.
As a result, “almost anything that has to do with financial services can be an issue,” said Taylor West of the National Cannabis Industry Association, a nonprofit group that advocates for marijuana businesses. Marijuana dispensaries and other businesses have the hardest time getting bank accounts, West said, but individuals can run into trouble, too. Banks have closed the accounts of pot entrepreneurs and employees, who can also have problems getting mortgages, she said.
Retirement plan providers and payroll companies can be leery of customers associated with marijuana. West's group went through a number of 401(k) providers before finding one that was willing to take its employees' retirement savings. Firms were scared off by the word "cannabis" in the group's name, West said, even though the organization does public advocacy, not pot cultivation or sales.
While health insurance companies operate very differently from life insurers, they can also be reluctant to deal with marijuana businesses. Employees at a Terra Tech subsidiary in California are going without health benefits because, Peterson said, he hasn't yet found an insurer willing to take them as clients.
Peterson is never sure what kind of reaction to expect from a financial or insurance company. A salesperson might be enthusiastic to sign up Terra Tech as a new customer, but isn't clear how much his or her bosses know or whether the firm’s compliance department would object, he said.
“Are we getting the full buy-in from management? If we’re not, that’s a risk,” Peterson said. “It’s a precarious situation to be in.”
Marijuana users might find it easier than employees or entrepreneurs, like Peterson, to hide their hobby from insurers. But Worters, of the Insurance Information Institute, warns of the risks. Lying on an insurance application, or in an insurance medical exam, is fraud. And, she noted, if you die and the insurance company later discovers you’ve been dishonest, it could reduce or cancel the death benefit.