I don't know if they do test for smoking but im pretty sure they do.
I quit 2 weeks ago. Prior to that I was a very light smoker, maybe 1 pack cigarettes a week.
Yes, they will test you for smoking and yes, nicotine will show up in your blood and urine tests.
This will not in itself result in a decline but it will get you tobacco rates. So, you should expect to receive a higher rate for your life insurance policy.
Also, if you stay smoke-free for 1-2 years you may be able to ask your life insurance company to re-test you and get a re-rate at a lower rate for non-smokers in the future.
Here's how you can learn more about the life insurance nicotine test.