By Michael Giusti
Nearly every aspect of life has been touched by Coronavirus and the resulting shutdowns and social distancing — and life insurance is no different.
Life insurance now is just as important a financial product as ever before – perhaps more so now that the global pandemic is sweeping the world, bringing death to many people’s minds.
In much the same way that the world is changing around us, in many ways, the familiar process of shopping for and securing a life insurance policy may also be a little different in this COVID-influenced world. But rest assured, insurance companies are still in business and are still writing new policies. The process just may take a bit more patience than it did in the past.
What’s the same
What hasn’t changed about life insurance is that it still comes in two primary categories – term and permanent. Term life insurance is a policy that protects someone for a given period of time – say 25 years. If the policyholder dies during that time period, their beneficiaries are paid the face value of the policy. If the policyholder doesn’t die, the insurance company keeps the premiums and the coverage ends.
Term life insurance is a terrific, and inexpensive option for people who have need for immediate financial protection — say they have young children they want to ensure are financially protected if they die, or if they want to ensure long-term debts, such as mortgages are covered, or long-term commitments, such as college tuition are assured if the policy holder was to die unexpectedly.
Permanent life insurance is substantially more expensive than term, but it too may serve a powerful financial planning role.
The main difference with permanent life insurance, whether it is whole life or universal live, is that rather than running for a finite term, permanent life insurance remains in effect for as long as the policy premiums are paid.
This potentially makes permanent life insurance a good choice if a policyholder wants to include life insurance as part of an inheritance or estate plan.
The other main difference is that permanent life insurance policies build up cash values over time, which can be used to borrow against, making them a potentially attractive financial planning tool that goes beyond end-of-life planning.
One way that can work is if a retiree has a permanent life insurance policy with an available cash value, that can be borrowed against and used to pay for day-to-day expenses in years that the stock market contracts, rather than selling shares from a 401(k). That way the retiree doesn’t have to sell at the bottom of the market and instead can allow their portfolio to recover while still having cash for expenses during retirement.
Permanent life insurance policies can also sometimes be used as tax-benefited savings vehicles.
What’s new
Regardless of whether a policyholder has a permanent or a term policy, if that insurance policy was already in place before the pandemic, and the insured person dies of COVID-19, the policy would almost certainly pay out a benefit — presuming that person was truthful when applying for the policy.
Applying for a new policy is where things have changed a bit post-COVID.
One way in which things may have changed is that the insurer may postpone an application if the applicant had recently traveled to hard-hit regions identified by the Centers for Disease Control and Prevention as Coronavirus hot spots, or if the applicant is planning to travel to Coronavirus hotspots in the near future.
The insurer may also postpone an application if the applicant has a member of the household who has recently returned from a hotspot or if they have come into close contact with someone who has tested positive for COVID-19.
In some cases, the applicant may also be required to get a good health certification from a physician to submit along with their application.
If someone does contract COVID-19, they may cause their application to be postponed for up to three months after fully recovering to ensure the virus doesn’t flare up again or some other complication doesn’t arise.
Simply getting the virus and later recovering shouldn’t affect a policyholder’s underwriting, but if the virus left them with some lasting health problems, that certainly could be considered when calculating the premium.
Typically, if an applicant is flagged for something Coronavirus related, the policy would be delayed, but their premiums wouldn’t necessarily go up.
Another way the application process has changed is that many states have prohibited in-home paramedical exams. That means that while in the past a nurse may have come into the applicant’s living room and collected vital statistics, such as height, weight, and blood pressure, in many states those visits are now off limits.
In other states, paramedical visits are allowed, provided everyone follows the CDC guidelines for safe interaction, including the use of personal protective equipment.
With the uncertainty, some insurers are instead turning to big data to weigh the applicant’s risks – relying on things like electronic medical records, rather than the in-home exam. Still others are postponing the application process until in-person exams are again allowed.
There are also no-exam policies available, but they tend to be more expensive and may have less attractive death benefits. Still, they may be the right option, depending on the applicant’s situation.
What’s always true
One thing that is always true about life insurance is that during the application process, the applicant is given a long list of questions to assess their risk. It is essential that the applicant answers each question honestly, completely, and truthfully.
That is because policies come with a contestability period – usually the first couple years into a policy, where the insurance company can review any claims made in the application. If the applicant was not truthful, such as omitting travel plans or medical history details, the insurance company would be within their rights to void the policy.
And if the policyholder ended up dying and the company found they were not honest in their application, the insurance company can refuse to pay out the death benefit, leaving the beneficiaries in the lurch.
Another thing that is always true about life insurance is that if a policyholder were to miss a payment and their policy lapsed, the policyholder would no longer be covered and won’t get a death benefit. Many policies have a 30-day grace period to bring the policy back in good standing, but if the policyholder dies while the policy is in limbo, all bets are off and the company is under no obligation to pay out.
Best practice is to make sure the policyholder communicates with the insurer before missing any premium payments so they can be fully informed of the consequences they are facing and the options that they may have available.
Another potential stumbling block to keep in mind is if the policyholder had an accidental death and dismemberment policy, known as an AD&D policy, illnesses aren’t covered, which means if they died of COVID-19, they would get no death benefit. Those policies are designed for accidental deaths, not illnesses.
All that said, if a policy is stalled or delayed, such as if a state is prohibiting at-home paramedical exams, one option for the applicant may be a temporary life insurance policy that is often offered by the insurance company from which you are applying for a long-term policy. Those temporary coverages aren’t as robust as the long-term policies, but temporary policies may offer a lifeline while the long-term policy is going through the application and underwriting process.
Living through a pandemic is scary and messes with many of the systems we take for granted every day. But life insurance remains a powerful and versatile financial planning product, even if a few details of applying for a new policy may have been changed to accommodate our new normal.
Michael Giusti is a senior writer at InsuranceQuotes.com. He has worked as a journalist for more than 20 years, including as a reporter at a daily newspaper in Florida, as an editor at a regional business journal, and as a writer for national and international publications. He specializes in business, technology, finance, insurance, automotive and industry-focused writing. He can be reached at: https://www.insurancequotes.com/