Scott Roberts, CPA, CLU
Director of Insurance Strategy
The first thing to know about life insurance during this (or any) pandemic is that the insurance companies will pay the death benefit. Individual life insurance policies do not have exclusions for pandemics. In fact, once past the 2-year contestability period, there are hardly any exclusions to individual life insurance (although some group life insurance policies do have exclusions for pandemics).
But life insurance companies are scrambling to deal with the pandemic as best they can, with the underwriting and product landscape changing literally daily. Most in flux are underwriting policies and procedures. Many companies have reduced the maximum age they will insure as the industry standard of age 85 has been largely reduced to age 80. In some cases, companies are postponing all applications where the insured is over age 65. Rated policies (where the insured has substandard health) are being limited also with many companies only issuing through a “Table D” and, in some cases, requiring a “Standard” offer to issue for insureds over age 70.
Foreign travel is now a big red flag with many companies requiring no foreign travel or cruise travel in the prior 30 days. Policies related to non-citizen insureds have been tightened also with many cases being postponed, depending on residency status. In almost all cases, insurance companies are requiring additional attestations from the insured related to foreign travel, COVID-19 symptoms and proximity to anyone with COVID-19 symptoms. And these attestations are generally required on both the application and again upon policy delivery via a statement of health.
Not surprisingly, insurance companies have faced logistical challenges related to product distribution and have maneuvered to facilitate the process. Electronic signatures are more and more widely accepted and several insurance companies have begun to accept electronic health records in lieu of the traditional scanned copies of doctor records. Perhaps most impactful, many insurance companies have begun to roll out programs that allow the traditional life insurance exam to be waived in certain circumstances, usually requiring good health and often limited by death benefit.
In addition to underwriting policies and procedures adjustments, insurance companies have taken other steps to guard against financial exposure due to the pandemic. For many products, death benefit and premium limits are being adjusted downward. In some cases, products are being repriced for new issues, although that process had started already due to the new 2020 mortality tables and the sustained low interest rate environment. But with interest rates being recently slashed again, there has been a quick reaction to decrease crediting rates on in-force and new policies and also decrease cap rates on Indexed Universal Life policies, both of which can have a significant impact on policy performance. But, again, many of those decreases were also influenced by pre-pandemic factors.
While insurance companies don’t seem poised to do so, and are generally loath to do so, nearly every policy issued allows the insurance company to increase the internal cost of insurance inside the policy. That ability to increase costs, which can have a pronounced impact on policy performance, is included for situations such as prolonged and deadly pandemics. Although, in the recent past, a handful of insurance companies have raised the cost of insurance for certain blocks of policies to help combat the sustained low interest rate environment. Fortunately, though, this pandemic doesn’t seem (at least not yet) likely to produce widespread death benefit claims that would prompt insurance companies to trigger these higher costs.