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How has COVID-19 impacted the insurance industry?

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6 mins

COVID-19 has undoubtedly changed our lives in many ways. Many people are still working from home, disinfecting things regularly, and doing their best to stay healthy. Many industries also have faced challenges during the pandemic that have altered the way they do business, both today and in the future.

Let's take a look at one industry in particular and how it’s been impacted by COVID-19: insurance. Insurance companies and their products are essential to protecting your family’s financial security. Here's how cost, coverage, and claims have been affected for both insurance companies and policyholders.

COVID’s impact on the cost of insurance

It’s understandable why insurance policyholders are concerned about their premiums going up. We’ve seen the images on our screens showing hospitals at or near capacity because of the influx of COVID patients, and, sadly, we’ve watched as the death count has risen to over 600,000 people in the United States.

But, should you expect your premiums to rise because of the high price we’ve paid personally, and may have paid financially, because of the virus? That’s going to depend upon the type of insurance you’re looking at.

Life insurance

For people that already own a permanent type of life insurance product, such as whole life insurance or universal life insurance, their premiums are guaranteed not to increase as long as they continue to pay them, and the insurance remains in force. The policy guarantees it, and you can find that clause when you read your policy (contract).

It could be a different story for owners of term life insurance when the term of coverage expires. Upon expiration of the term (one year, ten years, twenty years, etc.), the insured has the option to apply for either a new term life policy or a permanent life insurance policy. A life insurance agent will quote them a price at the time of application, determined by their age, gender, health history, and other factors.

Life insurance companies have the discretion to set prices at whatever level they want; these prices are determined by statistics, including the number of death claims they’ve processed and the dollar amount they’ve paid out for those claims.

Life insurers that have experienced a larger than anticipated number of claims and payouts can raise their premiums to ensure they have ample reserves to pay future claims. A premium increase would not affect owners of permanent life policies, but would impact anyone applying for a new policy.

Learn More: How Much Does Life Insurance Cost?

Disability insurance

Premiums for disability insurance are determined in much the same way as life insurance premiums are. It comes down to the history of claims payment, but with disability insurance, there are more variables involved.

In addition to the considerations life insurance companies use to determine their premiums (age, gender, health history, etc.), other variables used to determine disability insurance cost include occupation, your income, the length of time you are eligible to receive benefits once a disability begins, and the length of your waiting period before you start receiving benefits.

If you already have a disability policy in force, future premium increases won’t affect you, just like they won’t for life insurance policies. Also, with both types of insurance, premiums are largely dependent upon age and health history, making it more cost-effective to apply when you’re younger and in good health.

Thinking about disability insurance? Good thinking — Breeze can help.

Health insurance

Fortunately, the vast majority of the 35 million people that became infected with COVID-19 didn’t pass away. But, millions did require either emergency room treatment or admission to a hospital. Because of the sudden appearance of the virus in early 2020, these claims were not anticipated by health insurance carriers. Like all other types of insurance, unexpected claims will cause premium increases.

Unfortunately for health insurance policyholders, rates can be raised by health insurance carriers when your policy renews. As a result, health insurance premiums continue to rise. Whether or not a decrease in the number of cases lowers premiums remains to be seen.

COVID's impact on insurance coverage

The good news — unless you provided misinformation on your original application, your existing life, disability, or health insurance policy should have no change in coverage because of COVID-19. However, if your policy lapses in the future and you apply for new coverage, it’s possible you may see an exclusion for COVID-19.

The impact of the virus on coverage in the future is not yet apparent. Insurers are still evaluating the long-term impact of people who have recovered from COVID-related lung damage on insurability standards. As a result, insurability and qualifying for coverage could change in the future.

Another consideration that is too early for insurers to factor in is the recurrence of the virus. We may need to have an annual vaccination to minimize the possibility of infection, much the same as we do now with flu shots. If COVID-19 does become a seasonal illness, coverage may be affected. Stay tuned.

COVID's impact on insurance claims

The high number of claims experienced by insurers was unexpected. While insurance companies project into the future, pricing and coverage are most affected by their historical claims experience. Fortunately, thanks to industry regulation, top-rated life, health, and disability insurance companies have had the financial strength to pay eligible claims arising from the virus.

Unfortunately, this probably isn’t the last pandemic we’ll ever be faced with, making the need to own life, disability, and health insurance from an insurer with superior ratings a necessity to avoid a personal financial disaster. Particularly disability insurance.

The number of people who were ill from COVID-19 and were unable to work was sizeable. These individuals couldn’t perform their jobs and weren’t able to earn income, but they still had all of their regular monthly expenses to pay, like their mortgage/rent, food, utilities, car payment, etc. However, people who became ill and were covered by a short-term disability or long-term disability policy could meet their expenses while they recovered.

More time needs to pass before we’ll know the full effects of COVID-19 on the insurance industry. But, we do know that you can lock in coverage and rates by applying before unfavorable changes happen to coverage restrictions and pricing. It’s problematic enough that we have to worry about the physical effects of a pandemic, let alone the financial consequences. If you haven’t already, take action today to protect yourself.

Having grown up in upstate New York, Bob Phillips spent over 15 years in the financial services world and has been making freelance writing contributions to blogs and websites since 2007. He resides in North Texas with his wife and Doberman puppy.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published August 5, 2021
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