Life Insurance and Covid 19

While Covid-19 and its variants continue to impact the health of Americans in almost every community, city, and state, it’s only natural that a considerable number of residents begin contemplating the relevance of affordable life insurance.

Certainly, there are many questions on the minds of most of us as we look for the light at the end of the tunnel.

Will my policy pay my family if I die from Covid-19?
Is life insurance going to get more expensive because of the pandemic?
Should I get online and buy more life insurance now?
How will the pandemic impact me and my family?

The Impact on Those Who Apply for Life Insurance

While Covid-19 will not have an impact on people who already have life insurance, there will be some additional challenges for those who are scrambling to buy life insurance during the pandemic, especially in areas that have high case rates. Any changes to the life insurance application process will vary by insurance company but most applicants will likely face additional challenges when applying for life insurance during the Covid-19 pandemic.

Recent International Travel – If you have recently traveled to a foreign country (last 30 days), you’ll likely run into insurers who prefer that you wait 30 or 60 days before submitting a new application, especially if the country you visited was under a travel advisory.
Medical Exam Requirements – If you intend to purchase a policy that will be fully underwritten, you’ll likely find that scheduling a medical exam will be more challenging than usual. Because of the current shortage of medical professionals, your exam could be delayed for weeks or even months.
Increased Rates – Most insurance actuaries are admitting that they underestimated the increase in life insurance claims during the pandemic. Moreover, many insurers did not take into consideration deaths that resulted from sick or injured people who put off treatment because they were concerned about going to the hospital or outpatient facility. This unexpected increase in claims will have to be offset by increasing life insurance premiums for new applicants.
High-Risk Applicants – Age and health are typically key factors of high-risk applicants, and will be even more so during the pandemic since the most vulnerable are typically individuals who are 75 or older and individuals with comorbidities at any age. As such, life insurance companies will typically suspend offering life insurance coverage to high-risk applicants.

The Impact on Those Who are Already Insured

Fortunately, for individuals who already have life insurance, there are no exclusions in the insurance contract regarding death due to a pandemic. Simply put, if you are covered and die due to Covid-19, your insurance company will pay the claim.

There is, however, an indirect impact on individuals who are already insured. At the onset of the pandemic, our country began a shutdown that closed non-essential businesses which forced massive layoffs.

Individuals and families who were on solid financial ground prior to the pandemic, soon realized essential foods and other goods were scarce and difficult to purchase while living on an unemployment check. This resulted in folks who were ordinarily financially stable taking a close look at what they could do without.

Many decided that buying food and paying the mortgage was more important than a life insurance payment, and a lot of folks just stopped paying premiums. Their thinking was that this pandemic is temporary so I’ll just take out another policy when I get back to work.

The downside to this way of thinking is that if an individual is infected with Covid-19, insurers may be hesitant to offer new policies even when they get the “all clear” from the CDC. Certainly, the bottom line here is that if you have a life insurance policy now, do whatever you can to keep it in force.

The Impact of Covid-19 on Life Insurance Companies

The outbreak of Covid-19 has had far-reaching consequences, not just for individuals and families, but also for businesses and the economy as a whole. One sector that has been particularly impacted is the life insurance and annuities industry. Interest rates have declined, equity markets have taken a hit, and credit spreads have widened, all of which have increased volatility.

There are earning challenges, operating challenges, and considerably abnormal claim challenges that most life insurance companies must respond to.

Shortage of key employees due to quarantine requirements and hospitalizations due to Covid.
Distributors of life insurance products (independent agents) shut down offices and suspended seeing clients and prospective clients face-to-face.
Underwriting expenses skyrocketed as costs for medical underwriting increased.
In general, life insurance companies witnessed an increase in death claims by 40% because of policyholders dying from Covid or with Covid.
Policy lapses increased significantly as policyholders preferred to spend available income on food and housing instead of life insurance premiums as well as health-related coverages like dental and disability insurance.

The bottom line is life insurance companies suffered negative financial impacts all over the world.

For the fiscal year ending March 2020, Australian life insurers were dealt a net loss of almost $2 billion compared with a $759 million profit the previous fiscal year. (1)
In the U.S., life insurance giant Prudential reported a net loss of almost $2.5 billion in quarter 2 of 2020 compared with a $738 million profit posted in the same quarter of the previous year. (2)
Certainly, the national rating agencies took notice as financials were released. A.M. Best, the most popular rating service, revised its forecast and outlook for the U.S. life insurance industry as a whole from STABLE to NEGATIVE. (3)

In Conclusion

Without a doubt, nothing since the H1N1 Virus of 1918 has shaken the fabric of America like the Covid-19 pandemic. It caught the world by surprise and impacted everyone in it. What started as 15 days to flatten the curve ended up being a worldwide full-blown pandemic that has affected almost every American financially, medically, and mentally.

The good news is that our history tells us that whether the pandemic continues or fades away over the years, Americans are resilient and can tolerate catastrophes like earthquakes, hurricanes, 911, and yes, the coronavirus pandemic.

References:

Sood K. COVID-19 deepens life insurer losses (2020). Available online at: https://www.financialstandard.com.au
Bell A. COVID-19 and U.S. life insurers (2020). Available online at: https://www.thinkadvisor.com
Johnson K. AM Best: Market segment outlook for US life/annuity revised to negative (2020). Available online at: https://news.ambest.com