The coronavirus pandemic has put life insurance at the top of the priority list for many Americans. Last year, a third of consumers said they had bought or planned to buy new or additional life insurance, according to a Lincoln Financial survey.
Key points to remember
- Life insurance applicants without COVID-19 risk factors will see their rates drop.
- Insurers will ease COVID-19 restrictions on issuing policies.
- More insurers will offer no-exam life insurance policies.
- Hybrid life insurance policies will continue to proliferate, but guaranteed universal life may disappear.
Review of 2020 and outlook for 2021
“Anytime you have an event as impactful as COVID-19, which threatens mortality, the demand for life insurance increases,” says Byron Udell, President and CEO of Accuquote. “It happened in 2001. After 9/11 we had an immediate spike in demand that never really went down.”
Along with the increased demand for life insurance due to the pandemic, there have been some hurdles to issuing new policies – primarily the perceived danger of face-to-face interaction with a medical examiner – so companies have had to make adjustments. Some customers struggled to get policies last year if they had risk factors related to COVID-19.
As the industry looks to 2021, experts anticipate a new evolution in how insurance companies are meeting the challenges of COVID-19. Here’s what’s happening in the life insurance industry this year:
Reduced rates for consumers without COVID-19 risk factors
Some insurance companies have increased underwriting restrictions for people with comorbidities associated with a higher risk of death from COVID-19, such as diabetes or cardiopulmonary disease.
“But for customer segments that are at very low risk of COVID-19 mortality – people in their 30s and 40s with no underlying conditions – we’ve seen rates go down, and for non-smokers in particular “, says Jennifer Fitzgerald, CEO and co-founder of Policygenius. “I think we can expect to see more of that in 2021.”
Insurers ease COVID-19 restrictions
Last year, insurers imposed a number of coronavirus-related limitations. For example, many have stopped offering temporary coverage, that is, coverage during the underwriting process. Some also require customers to wait 30 days after international travel to purchase insurance.
“Some carriers weren’t issuing to anyone over 70, period,” Udell says. “Then it got really stupid. They finally backed down. I expect insurance companies to relax their requirements as they become less concerned about the risk of COVID-19 affecting mortality.
While many carriers have resumed offering temporary coverage, some still impose a 30-day waiting period after international travel. And no one knows for sure how carriers will respond to customers who have received the COVID-19 vaccine.
“It is too early in the vaccine development and delivery process for carriers to commit to related pricing or underwriting adjustments,” Fitzgerald says. “But it’s something we’re watching closely.”
More no-exam life insurance offers
“Medical exams have become more difficult to administer, especially in the past eight months,” Fitzgerald notes. As a result, many insurers have started offering no-exam life insurance policies up to a certain face value, or increasing the face value that they will now issue without exam. For example, SBLI increased its no-review face value limit to $750,000 from $500,000.
Other companies offer a “maybe no review” option where they reserve the right to order a review, but you may not be required to have one.
“Almost every carrier has developed a way to deliver a process that may be exam-free,” Udell says. “And they keep raising the limits, because if they don’t, they’re going to lose out to the companies that have the higher limits for those cases.”
More hybrid life insurance policies
Hybrid life insurance policies incorporate certain features of long term care insurance policies, offering consumers some benefit of both. For example, a hybrid product may have slightly higher premiums, but allow you to withdraw money for long-term care expenses, thereby reducing the death benefit dollar for dollar.
“This is a category that has grown tremendously over the past five years, mostly in permanent products, and it’s very popular,” says Udell. “Most carriers that don’t have these features are currently catching up and will likely introduce these options in the future.”
Guaranteed universal life insurance could be on the way out
Guaranteed universal life insurance is a type of permanent life insurance in which you pay a guaranteed annual premium for your lifetime. “It’s a bit like a term [insurance] forever,” Udell says.
As interest rates continue to remain low, an increasing number of companies are abandoning the insurance offer because it is no longer profitable. “These products dry out like crazy,” Udell says. “If we don’t see an increase in interest rates, most of the remaining carriers still issuing the product will dramatically raise prices or pull out.”