Has COVID-19 made life insurance more expensive? These researchers say they have the answer

The coronavirus pandemic has produced grim numbers that keep rising, like case counts, hospitalization rates and deaths.

But there’s that hasn’t increased this year: the cost of life insurance.

“We find limited evidence that life insurance companies increased premiums or decreased policy offerings due to COVID-19,” researchers said Monday in a study analyzing more than 800,000 life insurance-policy quotes from almost 100 companies between 2014 and October 2020.

University of Kentucky and Illinois State University economists did discover fewer policies being extended to the oldest of potential policyholders, above age 75. But even then, the cost of those premiums did not noticeably increase. By July, there was a 13.6% drop in the number of policies offered for one-, five- and 10-year terms offered to this demographic, according to the study distributed by the National Bureau of Economic Research.

In all, the “minimal observable adjustments” — which come as more people are thinking about end-of-life financial planning and drawing up wills — surprised at least one of the study’s authors.

After car-insurance carriers in the spring offered refunds for policyholders on the road far less, University of Kentucky Professor Aaron Yelowitz figured the life-insurance industry would also respond more to a situation implicating their coverage.

It didn’t happen, according to this research. “The verdict from life-insurance companies is coronavirus was not a sort of game changer,” he said.

That matters, because an insurance company’s profitability and financial well-being relies on its capacity to underwrite and anticipate mortality. “We think there’s no industry that’s better vested in getting it right than life-insurance companies,” said Yelowitz.

But not all analysts are so sure. “Predictions for near-term premium behavior should consider policyholder behavior, as well as company sponsored premium deferral programs,” an October 2020 report by Deloitte concluded. “Actuarial models will need to be updated to reflect changes in expectations, as well as timing of premium payments.”

“The COVID-19 pandemic and the subsequent volatility in market conditions are affecting life insurance and annuity companies,” it added. “Given the uncertainty that exists in these unprecedented times, we expect that insurers could face both short-term and long-term challenges to maintaining business continuity and profitability.”

In the latest study released Monday, however, researchers just looked at term life insurance policies, not whole life policies. (Term-life insurance offers a specified death benefit within the term, while a whole-life insurance policy, typically more expensive, has a cash value that increases over time.)

The average yearly policy was $3,887 for a 50-year-old and $872 for a healthy, non-smoker that age, according to researcher data.

As of October, the average yearly premium on a 10-year, $1 million policy was $258 for a healthy, non-smoking 30-year-old and $1,077 on a “regular” policy, according to study data.

A regular policy on for 50-year-old was $3,887 on average, and $872 for a healthy, non-smoking person. For a 70-year-old, it was $23,691 for a regular policy and $6,571 for a healthy, non-smoker.

Term life insurance policy sales increased 10% in the third quarter, the largest quarterly growth in sales in 18 years, said Catherine Theroux, assistant vice president and director of public relations at Limra, a research trade association for financial service companies including life insurance carriers.

Through the end of September, the sales count on term policies is up 7% from the same point last year. Last year, life insurers sold 9.4 million policies overall, Theroux said. “The pandemic, I think, has made it more clear how fragile life can be,” she told MarketWatch.

Fifty-four percent of Americans owned life insurance in 2020, down from 63% in 2011, she said.

Yelowitz and his co-authors have theories on why premiums haven’t increased.

First off, they noted there’s stiff competition in the industry, which could make higher premiums a tough decision.

Yelowitz and his colleagues emphasized the findings shouldn’t be seen as carriers downplaying the risks from coronavirus. “Our findings of relatively small adjustments in the term life insurance market— perhaps unexpected — should not be interpreted as dismissing the individual risk from COVID-19, especially for more vulnerable members of society,” they wrote. Instead, carriers may also be factoring in the effects of individuals’ precautions to avoid infection, as well as the public health effects of government shutdowns.

See also: A national mask mandate could save 130,000 lives by February, study finds

Another theory: Those facing the highest chance of dying from COVID-19 — like an elderly nursing home resident — wouldn’t be obtaining a life insurance policy to begin with.

An advisory committee in the Centers for Disease Control and Prevention last week voted to put nursing-home residents and health-care workers at the front of the line for a vaccine. One reason for prioritizing nursing-home residents: Staff and residents in all long-term care facilities accounted for 6% of coronavirus cases,yet 40% of deaths through late November.

The fast-approaching possibility of a vaccine in America cleared for emergency-use authorization may provide one final reason for the essentially flat premiums.

Insurers may regard the elevated risks as a brief moment in time given the life-insurance term. “The potential vaccine, along with our findings, suggest that it is unlikely that life-insurance companies will significantly alter policies in the next several months due to COVID-19,” the researchers wrote.

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