As the COVID-19 virus continues to spread around the world, there seem to be more uncertainties popping up each day. It comes as no surprise that we’ve received hundreds of questions over the last couple of weeks on how the pandemic is impacting life insurance coverage, and what that means for current and prospective policyholders.
Firstly, it is important to know that life insurance policies will pay out for all types of deaths, including deaths caused by pandemics, such as COVID-19.
If you already have a life insurance policy in place, you can rest assured knowing you are fully protected. If you were to pass away as a result of being infected by COVID-19, your family would receive the full death benefit of your policy. It doesn’t matter where you travelled to, how you contracted the virus, or what preventative actions you did or did not take. If you were truthful on your initial application, your death benefit will not be denied. The only standard excluded death on a life insurance policy is suicide that occurs in the first two years of the policy.
Additionally, all new life insurance policies will continue to follow the same rules, and therefore cover deaths caused by COVID-19.
The caveat is that insurance companies are going to be extra careful during the application review process to make sure that you are not currently a carrier of the virus. This means, you will be asked questions about where you have travelled to recently, where you plan to travel to in the near future, and if you have experienced any of the common symptoms associated with COVID-19. As long as you can truthfully respond that you haven’t recently travelled to or plan to travel to COVID-19 hotspots like China, Iran or Italy, and you haven’t been experiencing any COVID-19 related symptoms, then the current COVID-19 pandemic will have no effect on your ability to get approved for a life insurance policy.
To date, life insurance companies have not increased their prices to reflect the additional risk associated with COVID-19.
In other words, life insurance prices are still based on mortality projections that assume COVID-19 does not exist.
Life insurance is currently underpriced. The value you are now getting for a dollar of life insurance premium is a lot higher than it usually is.
Generally, when you buy life insurance, you are paying a price that directly corresponds to your probability of passing away. Unfortunately, everyone's probability of passing away has now increased because of COVID-19. So if you apply for life insurance now, you will be paying an amount that corresponds to a significantly lower number than your actual probability of passing away.
How much more value is there right now? Let’s look at the numbers.
Federal Health Minister Patty Hajdu said that between 30% - 70% of Canadians could become infected by COVID-19.
Additionally, data from the Chinese Center for Disease Control and Prevention shows that 0.2% of people under age 40 who are infected with the virus are dying.
Although it is extremely sad to say and very hard to imagine, the numbers suggest that about 0.1% of Canadians under age 40 could pass away because of a COVID-19 infection (50% of the population X 0.2% fatality rate = 0.1%). And the numbers are much higher for older segments of the population.
Ignoring COVID-19, a healthy 30-year old Canadian woman has a 0.07% chance of passing away in the next year. If we now add on that 0.1%, you can see that the mortality risk more than doubles to 0.17%.
So, if you buy a life insurance policy today, the price you should be charged is a lot more than the price that you’ll actually be paying.
The bottom line
I am certainly not suggesting that everyone should drop what they are doing and immediately buy a life insurance policy. The truth is, if you do not have a life insurance need (as many don’t), then you should never buy it, irrelevant of how good the value currently is. But, if you have dependants that rely on you financially, and have been putting off applying, now might be the right time to do so.
Click here to learn more about the impacts of COVID-19 on life insurance coverage.