Final Review for 2020: Life Insurance and COVID-19
November 2020 Newsletter | By: Ian Sachs, CFP®
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Eight months after the American outbreak, I’m still being asked about how Coronavirus (COVID-19) is affecting the life insurance industry.
In a nutshell, demand has skyrocketed. Though the conceivable threat of dying has only marginally increased with the presence of COVID-19, the heightened awareness of one’s own mortality is disproportionately being recognized. This pattern is consistent with previous medical, societal, and financial hardships like the AIDS pandemic, 9/11, and The Great Recession of 2008.
Life insurance costs remain consistent with trends that existed before the COVID-19 pandemic started. The industry is extremely proficient in calculating statistics and evaluating risk. The premiums we pay today are based on hundreds of years of data and unfortunately, history tells us that this first and will not be the last pandemic that the world will face.
As the end of 2020 approaches, we have noticed a few changes within the life insurance industry when it comes to product availability, pricing, and medical underwriting. Some of these changes are subtle and understandably less ideal for the consumer, while other changes are surprisingly positive.
- We watched insurance companies remove specific product offerings to limit areas of risk but are now beginning to see some of these products get reintroduced back into the market. Prudential Financial Inc., one of the world’s most recognized life insurance companies, paused and then resumed offering its 30-year-term product. This is just one of several examples.
- We have also seen some carriers increase their prices for permanent insurance products such as universal life and survivorship policies. This is not specifically because of COVID-19 – it’s primarily due to today’s low interest rate environment (see April’s Newsletter for more details). This trend will likely reverse when interest rates begin to rise again.
- Despite low interest rates and a global pandemic, Prudential’s profit increased by almost 5% in the third quarter. Insurance companies continue to remain solvent. The lack of clarity around COVID-19 is clearly a concern to all insurance industries, but unlike other types of insurance, life insurance products (in most instances) can and do guarantee premiums. As for any fundamental modifications like future policy exclusions, there is no concrete evidence alluding to such changes.
- While remaining consistent with early reports (see March’s Newsletter), none of these developments have been earthshattering to say the least, but the method in which we are underwriting new clients has radically changed. The application process across most carriers is now almost exclusively digital and many carriers are offering accelerated underwriting. These programs do not require a medical exam under certain prerequisites and turnaround times are often just a few days or weeks.
- In August, The Wall Street Journal ran a piece that covered how life insurance companies have been reaching deals with hospitals to have access to personal medical information, following suit with big tech companies like Google and Microsoft. These advances will help eliminate the lengthy process of manually collecting medical records and may contribute to lower costs for the consumer because of less administrative work.
It’s worth noting that life insurance policies already in place cannot be retroactively changed or amended in ways that were not outlined in the original policy contract. Policy holders are still covered in virtually every scenario and do not need to be concerned about new price changes for guaranteed premiums or introduced exclusions if any.
Now is as good of a time as any to obtain more life insurance if your current plan is no longer adequate. It provides valuable protection not only for premature death and various business needs, but also for wealth accumulation that has certain guarantees with principal preservation, and estate planning to address future tax liabilities. All things aside, you are younger and likely healthier today than you will be tomorrow. Make sure that your bases are covered.
The drug maker Pfizer announced that they are working on a vaccine that is currently 90% effective in preventing the disease among trial volunteers. The end of COVID-19 is hopefully on the horizon for 2021.