As the coronavirus (COVID-19) pandemic reshapes our daily lives, its impact extends beyond health and social interactions to significantly affect the financial and insurance sectors. The reality of our new normal includes not just a scarcity of everyday supplies like toilet paper but also profound changes in the economy and how life insurance policies operate. Here’s what you need to know about how COVID-19 is affecting life insurance for policyholders and new applicants.
Impact on Existing Life Insurance Policies
Fortunately for current policyholders, the terms of a life insurance policy, including the death benefit, generally cannot be changed by the insurer once the policy is in force. This means that if you have an existing policy and pass away from COVID-19, your beneficiaries should receive the benefits without issue, regardless of any pandemic-related circumstances or even if you had traveled or violated stay-at-home orders.
Financial Impacts on Policies
While the death benefit of your policy remains secure, other aspects of your life insurance might feel the economic impacts of the pandemic:
Interest Rates and Cash Value: In response to the economic downturn, the Federal Reserve cut interest rates to near zero, reducing the growth potential of the cash value component of life insurance policies. Policyholders with whole life insurance might see smaller dividend payments, and those with policies that accumulate cash value might notice slower growth.
Variable Life Insurance Policies: If your policy’s cash value is invested in the stock market, you might see fluctuations mirroring the market’s volatility. It’s crucial to review your investment allocations and understand the risks, as significant declines might require you to pay higher premiums to keep the policy active.
Dealing with Premium Payments
The economic fallout has led to job losses and financial strain for many, potentially making it difficult to keep up with insurance premiums. Recognizing these challenges, some insurers are offering deferral programs and other relief options:
Premium Deferrals: Companies like New York Life and Northwestern Mutual are offering temporary relief for policyholders impacted by COVID-19, allowing them to defer premium payments to keep policies active without cancellation.
Flexible Payment Options: Insurers are encouraging policyholders facing financial difficulties to contact them to discuss possible arrangements that could include extended grace periods or adjusted payment plans.
Changes to New Life Insurance Policies
The pandemic also affects those looking to purchase new life insurance policies:
Underwriting Changes: Insurers are incorporating additional questions into the application process to assess the risk of COVID-19, including inquiries about recent travel, possible exposure to the virus, and any symptoms of illness. These factors could delay the application process or affect premium rates.
Medical Exams: Traditional life insurance applications that require medical exams are facing challenges due to social distancing guidelines. Some insurers are modifying their requirements, either by postponing exams, using previous health data, or temporarily eliminating them, which could lead to higher premiums without an exam.
No-Exam Life Insurance Options
For those unable or unwilling to undergo a medical exam at this time, no-exam policies like simplified issue or guaranteed issue life insurance are alternatives, though they generally come at a higher cost and with certain limitations, such as graded death benefits.
Staying Informed and Prepared
As the situation with COVID-19 evolves, so too does the landscape of life insurance. Whether you are a current policyholder or considering a new policy, it’s important to stay informed about how these changes might affect you and to communicate openly with your insurance provider about your needs and any financial hardships.
In these uncertain times, securing life insurance and understanding your policy’s terms are more crucial than ever, not just for peace of mind but also for the financial security of your loved ones.
