By Jay Scheiner JD CLU
Could life insurance rates skyrocket? As the COVID-19 pandemic continues to impact the health of people throughout our country and the world, producers are questioning how the virus will affect life insurance pricing for their clients going forward. I spoke with several industry experts and actuaries – here’s what I found…
COVID has made it harder for many to get a new life insurance policy. Insurers considered immediate and significant pricing hikes on rates in the short-term, but we have not seen this. Instead, some insurers have stopped selling insurance to individuals over a certain age or above a certain rating class, rather than taking a singular pricing action. This withdrawal from selected markets (the populations most at risk for COVID deaths) is how many insurers defensively dealt with the virus early on in the pandemic.
While all insurers experienced losses as a result of a spike in mortality from early 2020 to early 2021, some realized a less dramatic increase in claims because many of the COVID deaths were from populations that tended to no longer be insured (the elderly) or insured for more modest face amounts. There is also the reality that many of the deaths that have occurred from COVID in the elderly or sick populations would have occurred anyway. Companies specializing in term insurance experienced less of an impact than those concentrating on permanent coverage.
Is the spike in mortality short-lived or will it be a continued threat to insurers? The industry pros I spoke with point to the record-breaking development of highly effective vaccines as a game-changer; they believe in the ability of those pharmaceutical companies to also modify the vaccines to combat COVID variants. However, the big question is whether the industry will actively price into a life product the possibility of new and wholly unrelated pandemics years or even decades into the future – and at what cost. As former CDC Director, Virologist Robert Redfield, stated recently, “there will be another pandemic, guaranteed.”
There are less direct but related factors affecting mortality as a result of the COVID-19 pandemic and lockdowns:
- People have been reluctant to see their personal physician and specialists for routine examinations and screening tests
- Impact of effects of “COVID Syndrome” where the illness carries a lasting impact on the body which can ultimately impact mortality
- The increase in alcoholism and drug usage seen as a result of lockdowns
A few unforeseen benefits uncovered during the pandemic:
- The near disappearance of the flu and reduction in the common cold in the US last winter, likely due to mask-wearing, frequent hand-washing and social distancing
- Many young and healthy people can now purchase significant amounts of insurance without an exam or bloodwork – some carriers have raised these non-medical limits to multi-million dollar levels
Ask your client, does the COVID-19 pandemic make it more important than ever to have life insurance? The answer will probably be, yes. We don’t think that COVID-19 significantly changes the answer to whether your client needs a life insurance policy. Life insurance has always been necessary for anyone whose death would result in financial strain for a family member or business, or anyone who depends on someone else for financial support. Your clients should have enough insurance to replace that support for as long as it is needed. Married couples, even those without children, can also use life insurance to ensure that each spouse can maintain their prior standard of living even if the other passes away.
So, will life insurance rates skyrocket as a result of the COVID-19 pandemic? According to the sources I spoke with, the answer is probably no. But combining the COVID-19 burden with other pressures the insurers are currently dealing with, such as sustained low interest rates and increasing regulation, there is now a pronounced upward trend in life insurance pricing.
The bottom line is that your clients should buy while they can qualify, and sooner rather than later, as it is unlikely we will see rates as affordable as they are today.
Jay Scheiner is Executive Vice Present of Agent Support Group, an AmeriLife Company.