Will Covid Deaths Mean Higher Life Insurance Rates? - Forbes

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So far Covid has taken a horrendous cost—more than 950,000 American lives.

The cost of the resulting life insurance claims was also high: $90 billion in 2020, according to the American Council of Life Insurers. That’s the biggest year-over-year increase since the influenza epidemic over a century ago. Life insurance payouts increased 15.4% in 2020 compared to 2019 (the latest numbers available).

Here’s the question for millions of Americans now seeking life insurance: Will premiums skyrocket because of the rise in life insurance payouts? Many insurers say no. At least not immediately.

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Optimism Prevails Among Life Insurance Companies

“We have no plans to raise rates,” says President and CEO Brooks Tingle of John Hancock Insurance, the Boston-based life insurer. But he admits he’s “on the optimistic side.”

Other insurers are also—cautiously—optimistic. “We have plenty of capital and don’t need to do anything immediate about pricing,” says another major insurer, who asked not to be identified.

The same holds true for CUNA Mutual Group. “It’s unlikely that we’ll see insurance rates go up, but we need to keep an eye on the long-term derivative impacts of Covid,” says Rebecca Rosser, who handles product management for the mutual insurer.

In December 2021, A.M. Best, which provides financial strength ratings of insurers, raised its outlook for the life and annuity industry to “stable” from the “negative outlook” it took in March 2020 when “uncertainty loomed.”

Life Insurance Covers Death from Covid

To clear up any potential confusion: Life insurance covers deaths related to Covid. The virus is “not excluded from any type of life insurance policy,” says spokesperson Mark Friedlander of the Insurance Information Institute, a group representing the industry.

There’s no doubt that life insurers took a hard hit from the unexpected virulence of Covid. Their net income fell more than 50% in 2020. The Covid variants Delta and Omicron have had a more deadly and extended run than any other recent epidemic.

But life insurance companies are used to playing the long game. Life insurance rates are based on actuarial tables extending out a century—the life expectancy of a newborn baby.

Insurers could have suffered even more, but didn’t because “the early deaths were older folks and a lot of them were uninsured,” according to one insurer.

“The tradeoff with the increase in current mortality is that since so many people who passed were older and less healthy, we may see years of less mortality when Covid subsides,” says another insurer.

Despite positive signs, there is also still uncertainty about the future effects of Covid. “Nobody knows exactly how Covid will impact the long-term mortality of the country yet,” says Paul Graham of the American Council of Life Insurers.

Surge in Life Insurance Sales

Covid created a big demand for life insurance as people feared for their health and sought ways to provide financial protection for their families. Life insurance sales had been in decline for many years as Americans chose to put their money in assets, such as stocks and homeownership. The purchase of life insurance policies had fallen more than 10% in the last 10 years to a record low.

“Now we’ve seen increased awareness of life insurance products, particularly among middle income consumers,” says CUNA Mutual’s Rosser. More than 43 million life insurance policies were purchased in 2020 alone.

New annual premiums for life insurance grew 18% in the first three quarters of 2021 compared to the previous year, according to the latest data available from LIMRA. That’s the biggest surge in 25 years for any nine-month period.

And as businesses struggle to find workers, they are offering more life insurance as an incentive. Group life insurance policies, primarily available through employers, rose 18% from 2019 to 2020.

The Positive Side of Higher Interest Rates

The rise in interest rates as the Federal Reserve acts to curb inflation could also benefit life insurance companies—and help keep life insurance rates low for buyers. Life insurers maintain more than 70% of their assets in bonds in order to ensure they have money for claims payments many years down the road. What could put a damper on the stock and housing markets might prove beneficial to life insurers.

“Higher rates are generally a positive for the industry,” says Tingle at John Hancock.

Life insurers are also showing better balance sheets. Despite Covid, industry assets totaled $8.2 trillion in 2020, an almost 8% jump from the previous year. And the outlook is improving as insurers emerge from the pandemic. “Many carriers are forecasting substantial top line (operating profit) growth this year,” says Friedlander at the Insurance Information Institute.

And the shift toward online life insurance quotes and sales could make the life insurance industry more competitive. Better transparency in prices will surely benefit consumers, especially those buying term life insurance.

The Vaccination Question

One big—and controversial—question is whether life insurers will include an application question that asks: “Have you been vaccinated?” And whether they would decline to sell life insurance to those who answer no. Insurers say that scenario is unlikely since it would have to be approved in all 50 states and many states are considering laws that would prohibit insurers from asking about vaccination status.

Long Covid and Life Insurance

What about the unclear effects of Covid on a person’s long-term health? Insurers like John Hancock’s Tingle, who takes an “optimistic view,” envision that it will serve as a reminder that people should have at least six months of financial security if a family breadwinner dies.

He also hopes that the preventable Covid deaths seen among vulnerable groups like diabetics and the obese will encourage people to live healthier and longer lives.

A study published in Frontiers in Medicine in December 2021 points out that surviving Covid is no guarantee of a long life. Those under age 65 who lived through a severe case are more than twice as likely to die within the next year as those who are unaffected or had a milder case.

Life insurance buyers suffering from long Covid symptoms already have hurdles to getting coverage at a good price. Conditions resulting from Covid, such as heart problems and kidney impairment, will lead to higher life insurance quotes depending on the condition. The higher quotes are based on the underlying conditions, not necessarily the cause, such as Covid.

Long Covid only adds to the pile of worries for life insurers. Car crash fatalities have risen, and insurers also worry about alcohol and drug abuse from prolonged isolation due to the pandemic.