The fluid situation of the coronavirus epidemic has virtually every business wondering what tomorrow looks like.
The life insurance industry is no different.
In fact, life insurance companies are uniquely exposed to severe adverse effects from the Covid-19 virus.
We spoke to industry executives both at the carrier and agency level to get a better understanding of the situation. For a variety of reasons, we omitted their names and company affiliations.
When it comes to the coronavirus and life insurance, here are the facts.
Life insurance companies are in the business of assessing risk.
As such, they have been closing monitoring the coronavirus situation from the very start so they can take necessary action to limit their exposure.
Below are all the various ways life carriers have made temporary changes specifically because of Covid-19.
Some insurance carriers have begun adding exclusion riders on newly issued policies. Basically, this means they issue the life insurance contract, but they include dialogue that specifically voids them of liability if the cause of death has any relation to the Covid-19 virus.
An exclusion rider would read something like:
This Insurance does not cover any claim in any way caused by or resulting from:
- Coronavirus disease (COVID-19)
- Severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2)
- Any mutation or variation of SARS-CoV-2
An exclusion rider such as this could become an industry standard if the morbidity rate causes carriers to experience detrimental financial losses due to an unexpected and unsustainable claims rate.
Halt on new business
Another action that some carriers have taken is a putting forth a temporary hiatus on new business.
Some of the carriers that taken this action have stopped accepting applications for all products. At the same time, some carriers have just stopped accepting applications for certain products they offer.
This hiatus will likely only last until a vaccine was developed, but technically nobody knows how long.
Limiting the age of new applicants
Some life insurance companies have lowered the max for new applicants on some of their products.
For example, some companies that use to accept new applicants up to age 85 now only accept applicants who are 75 or 80.
Many life insurance companies have taken this action to limit their risk since the elderly are much more vulnerable to Covid-19.
For decades, life insurance companies have had underwriting rules regarding foreign travel.
There are certain regions of the world they know are extremely dangerous and as such don’t want to insure someone who intents to travel there (i.e. Syria or Iraq) in the near future.
Insurance carriers are now withdrawing/delaying applications where applicants expect to travel outside of the USA to places such as China.
If you have plans to travel abroad, you will likely find great difficulty getting a new life insurance application approved (especially if you destination is a hotbed for the virus).
On the flip side, if you have recently traveled from an affected area, expect to wait at least 30 days before carriers will consider your application.
Adding a coronavirus questionnaire to applications
In addition to the normal application, some life insurance companies have added additional questionnaire to screen out applicants who potentially have Covid-19 that just hasn’t been confirmed.
Some of the most commons questions asked are:
- In the last 90 days has a doctor advised you to have a Covid-19 test that has not been complete or for which results are not known?
- In the last 90 days has a doctor advised you to self quarantine due to potential exposure to Covid-19?
- In the last 90 days have you consulted a physician for unexplained fatigue, cough or fever?
There are other similar questions carriers will ask, but those are the most common ones.
Yes you can get life insurance during this epidemic. Like normal, your health and lifestyle will determine your eligibility.
Life insurance rates are still the same even during this tumultuous time. Don’t expect to pay higher than normal premiums due to the coronavirus.
If you currently have the coronavirus you cannot qualify for a new life insurance policy with any company.
The only exception to this rule would be if you bought a guaranteed acceptance policy. Guaranteed acceptance is a life insurance policy with no medical or lifestyle underwriting.
However, those policies all have a 2-3 year waiting period before you’re insured. So if you were recently diagnosed with Covid-19 and want to get life insurance to ensure your family gets a check in the event you passed away, a guaranteed issue policy won’t help you.
So why can’t you get a new policy when you have the virus?
On every life insurance application there will be a question that reads something along the lines of:
In the last 12 months, have you had or been advised to have by a physician any surgery, diagnostic test, hospitalization, treatment or other procedure that has not been done or for which results are not known?
A yes answer to this question is always a decline. Again, every single application no matter what company you consider or what type of policy you look at will have this sort of question.
What a question like this is basically asking is if you have any upcoming surgeries or medical treatments that haven’t yet been completed.
If you have the coronavirus your doctor will absolutely order you to either be hospitalized or to undergo at home treatment or both. Either way, it would require you to say yes to that question.
What if you lied on the application and said no the health questions, will the policy payout?
No it won’t.
Let’s just say you are diagnosed with coronavirus and you apply for life insurance. On the application, you say No to the question about pending hospitalizations or other medical treatments.
After your policy is issued, you pass away (for any reason) within the first two years of the policy.
All life insurance contracts (there are no exceptions to this rule) have what’s called the contestability clause. It gives the insurance company the right to investigate all claims that occur within the first two years (some states it’s only 1 year) of the policy.
Essentially, the life insurance company will order a copy of all your medical records to validate that you didn’t misrepresent your health when you applied for the insurance. If they find no evidence of misrepresentation, the claim will be paid in full.
However, if they do find something in your medical records that had they (the insurance company) known at time of application that would have caused them to never issue the policy, they will deny the claim. In this scenario, they will rescind the policy which basically means it never existed in the first place. They would merely send you back all your premiums and void the contract.
So if you’re diagnosed with coronavirus and you lie on a life insurance application and you die shortly thereafter, the insurance company will get your medical records. They will see your diagnosis, and, on that basis, they’ll deny your claim because you should have answered the health questions differently which would have caused them to never issue the policy in the first place.
Yes any existing life insurance policy will not be affected by a death from the coronavirus.
Since you took out the policy before this epidemic, you can feel completely comfortable that if you die you’ll have a valid claim that will be paid.
Also, life insurance companies have reserves in place to cover unexpected claims due to a pandemic or other unusual societal circumstance.
Actuaries plan for situations like this.
If you previously contracted the Covid-19 virus and have since fully recovered, you will likely have no issue obtaining a new life insurance policy.
The only way a bout with the virus would cause an issue would be if you were hospitalized. Many life insurance applications ask a question such as “In the last 12 months, have you been confined to a hospital?”.
If a question like that appears on an application, it will typically result in a decline if you said yes.
In the end, if you beat the Covid virus, you should have no issue getting approved for a new life insurance policy.