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Will Covid deaths mean higher life insurance rates? – Forbes Advisor

By on March 3, 2022 0

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So far, Covid has claimed over 950,000 American lives.

The cost of resulting life insurance claims was also high: $90 billion in 2020, according to the American Council of Life Insurers. This is the largest year-on-year increase since the flu epidemic more than a century ago. Life insurance payouts increased by 15.4% in 2020 compared to 2019 (latest figures available).

Here’s the question millions of Americans looking for life insurance are asking: Will premiums skyrocket due to increased life insurance payouts? Many insurers say no. At least not immediately.

Optimism reigns among life insurance companies

“We have no plans to raise rates,” says chairman and chief executive Brooks Tingle of John Hancock Insurance, the Boston-based life insurer. But he admits he is “on the optimistic side”.

Other insurers are also — cautiously — optimistic. “We have a lot of capital and don’t have to do anything about pricing right now,” said another major insurer, who asked not to be identified.

The same goes for CUNA Mutual Group. “We are unlikely to see insurance rates increase, but we need to keep an eye on the long-term derivative impacts of Covid,” says Rebecca Rosser, who manages product management for the mutual insurer.

In December 2021, AM Best, which provides financial strength ratings for insurers, raised its outlook for the life insurance and annuities industry to “stable” from the “negative outlook” it had taken on. March 2020 when “uncertainty hovered”.

Life insurance covers Covid death

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

There is no doubt that life insurers have been hit hard by the unexpected virulence of Covid. Their net income fell more than 50% in 2020. The Covid Delta and Omicron variants have had a deadlier and more prolonged run than any other recent outbreak.

But life insurance companies are used to playing for the long term. Life insurance rates are based on actuarial tables spanning a century, the life expectancy of a newborn.

Insurers could have suffered even more, but they did not because “the first deaths were of elderly people and many of them were uninsured”, according to one insurer.

“The trade-off with the current increase in mortality is that since so many of the people who died were older and in poorer health, we could see years of less mortality when Covid subsides,” says another insurer. .

Despite positive signs, there are also still uncertainties about the future effects of Covid. “Nobody knows yet exactly what impact Covid will have on the country’s long-term mortality,” says Paul Graham of the American Council of Life Insurers.

Increase in life insurance sales

Covid created a high 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 declining for many years as Americans opted to put their money in assets, such as stocks and property. The purchase of life insurance policies had fallen more than 10% over the past 10 years to an all-time high.

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

New annual life insurance premiums were up 18% in the first three quarters of 2021 from a year earlier, according to the latest available data from LIMRA. This is the largest increase in 25 years for a period of nine months.

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

The positive side of higher interest rates

Rising interest rates as the Federal Reserve acts to rein in inflation could also benefit life insurance companies and help keep life insurance rates low for buyers. Life insurers hold more than 70% of their assets in bonds to ensure they have money to pay claims for many years. What could dampen the stock and housing markets could prove beneficial for life insurers.

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

Life insurers also have better balance sheets. Despite Covid, industry assets totaled $8.2 trillion in 2020, a nearly 8% jump from the previous year. And the outlook is improving as insurers emerge from the pandemic. “Many carriers expect substantial revenue (operating profit) growth this year,” says Friedlander of the Insurance Information Institute.

And the move towards online life insurance quotes and sales could make the life insurance industry more competitive. Greater price transparency will surely benefit consumers, especially those purchasing term life insurance.

The question of vaccination

A big – and controversial – question is whether life insurers will include an application question that asks, “Have you been vaccinated?” And if they refuse to sell life insurance to those who answer no. Insurers say that scenario is unlikely because it would need to be approved in all 50 states and many states are considering laws that would ban 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, which takes an “optimistic view”, predict that it will serve as a reminder that people should have at least six months of financial security if a breadwinner dies.

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

A study published in Frontiers in Medicine in December 2021 points out that surviving Covid is not a guarantee of long life. People under 65 who have had a severe case are more than twice as likely to die in the next year as those who are unaffected or have had a milder case.

Life insurance shoppers with long Covid symptoms already face hurdles in getting cover at a good price. Conditions resulting from Covid, such as heart problems and kidney failure, will result in higher life insurance quotes depending on the condition. The highest quotes are based on the underlying conditions, not necessarily the cause, like Covid.

Long Covid only adds to the pile of worries for life insurers. Death by car accident have increased, and insurers are also concerned about alcohol and drug abuse due to prolonged isolation due to the pandemic.

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