One of the silver linings of the pandemic is that it has prompted Americans to tackle some financial tasks they have been putting off—such as getting life insurance.
In fact, 1 in 4 people surveyed by insurance industry group Life Happens said they bought life insurance for the first time because of the coronavirus.
As applications for policies rose this year, life insurance companies had to adapt to meet the growing demand at a time when there was a challenge to doing business as usual. Companies were forced to rely more on technology rather than face-to-face interactions. As a result, the process of getting insurance became faster and easier for consumers, says Jason Wellmann, senior vice president of life insurance sales for Allianz Life Insurance Co. of North America.
But some consumers have faced more hurdles in getting life insurance as a result of the pandemic. Even though the advances that have been made in the industry will continue to benefit consumers going forward, the challenges to getting coverage will also continue.
Here’s what buying life insurance in 2021 may look like.
Lower Rates for Those With a Lower COVID-19 Risk
Life insurance prices did rise, on average, during the summer of 2020, according to the Policygenius Life Insurance Price Index. That was mainly due to low interest rates, which have pummeled insurers’ gains on their investments.
But some insurers started reducing rates in the fall for applicants who face a lower mortality risk for COVID-19, says Jennifer Fitzgerald, CEO and co-founder of Policygenius. Those applicants include younger adults who don’t smoke and don’t have any health conditions that have been linked to an increased risk of dying from the virus.
Life insurance rates will likely continue to be low for that segment of the population in 2021, Fitzgerald says.
As for whether getting a COVID-19 vaccine will impact coverage and rate decisions, it’s too early to know. “[Insurers will] want verification that the vaccine is effective before making any broader decisions,” Fitzgerald says. “Whether or not insurers will want proof of individual applicants having the vaccine is also to be seen.”
Looser COVID-Related Restrictions
Life insurance companies also responded to the pandemic by putting restrictions on applicants. For example, some insurers placed restrictions on applications from older adults, Fitzgerald says. Insurers also postponed applications from people with international travel plans (even before countries closed their borders).
Fitzgerald says she expects to see continued restrictions based on travel, health and age in 2021.
Some restrictions put in place early in the pandemic—such as discontinuing temporary coverage—are being loosened. You can gain temporary coverage by attaching a check for your first premium payment to your application. This gives you coverage while the application is being processed—which in some cases can be well over a month.
Increase in Insurers Offering No-Exam Policies
One of the biggest challenges that insurers had to adapt to early in the pandemic was not being able to conduct in-person life insurance medical exams as part of the life insurance underwriting process.
Already, a growing number of insurers had stopped relying so heavily on medical exams and had been using a process called accelerated underwriting. This involves data modeling to predict an applicant’s life expectancy and provide a life insurance quote. Since the pandemic began, more companies have adopted accelerated underwriting and those that had been using it improved upon the process.
“The gains that have been made in accelerated underwriting over the last year are better than the gains over the past 10 years combined,” says Marc Cadin, CEO of Finseca, an organization that represents the financial security industry. As a result, getting life insurance has become faster, easier and painless when applicants don’t have to go through a medical exam.
And the price for an accelerated underwriting policy is typically on par with the rate for a traditionally underwritten policy with a medical exam. Cadin says he expects the trend toward accelerated underwriting will continue to grow in 2021.
Higher Coverage Amounts for Accelerated Underwriting Policies
One of the trade-offs with a no-exam accelerated underwriting policy has been the amount of coverage you can get. The death benefit on these policies typically was often limited to $1 million. However, many insurers increased the coverage limits on these policies once the pandemic began, Wellmann of Allianz says.
For example, Allianz boosted its limit on accelerated underwriting policies from $1.5 million to $3 million and will maintain that limit going forward, Wellmann says. He expects some other insurance companies to keep their higher limits in 2021. That’s a big win for consumers who want more coverage without having to go through a lengthy underwriting process with a medical exam.
More Companies to Offer Hybrid Life Insurance Policies
Hybrid life insurance policies that provide a long-term care benefit have been growing in popularity. These policies can be used to pay for long-term care and will pay a death benefit when the insured dies.
More companies started offering hybrid life insurance policies in 2020, and Cadin says he expects to see that trend continue in 2021. Consumers also will benefit because companies are making the application process for these policies easier, he says.