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Life Insurance During Covid
The global Covid pandemic had a far-reaching effect on businesses and people's lives. But perhaps one of the more surprising aspects of the virus centers around life insurance, with an increasing number of people getting coverage in the post-Covid world.
In this guide, we’re looking at life insurance during Covid and the impact of the pandemic on changing the way people think about getting coverage.
What happened to life insurance during Covid-19?
You are probably sick to your stomach of Covid by now. New normal, unprecedented, lockdowns, pandemic–you've heard it all before, so we won't go into the details. However, one interesting aspect of the pandemic is its relation to life insurance–more specifically, how people view life insurance since Covid became a thing.
Since the pandemic, the number of life insurance policies sold jumped by 11%, which is the biggest life insurance increase since 1983. Basically, we’ve all seen people die from Covid, and we want to protect our loved ones–not just from the virus (there are vaccines for that), but from being left without any financial protection.
Young people especially are jumping all over life insurance policies post-Covid, with application activity for US life insurance rising by nearly 8% year-on-year in 2020 for people aged 44 and below.
On top of young people getting life insurance, around one in three consumers say Covid had increased the likelihood of them getting a policy within the next 12 months. So with all this extra attention on life insurance coverage, you may have a few questions. And we’re happy to answer.
Does life insurance cover Covid-19?
The first question you probably have regarding life insurance during Covid is “does it apply to death caused by Covid-19?”. The short answer is yes, yes it does. Your policy will cover you against Covid as long as you haven't already had it or recently traveled to an affected area without disclosing your visit during the application.
Life insurance premiums haven’t changed for people who don’t–nor previously had–Covid. However, if you’ve been infected with it or traveled to a region with a heavy outbreak, your premiums could be much more expensive. Some insurers have also stopped selling policies to older customers of a certain age, though life insurance has always been more expensive the older you are.
There is some better news, however. Many insurers have stopped doing exams due to social distancing restrictions. That means obtaining a policy in the current climate is probably easier than if you were to get one in a post-Covid world.
Is there anything else I should know about life insurance during Covid?
Some life insurance companies may have options available to cover you if your income is affected by a layoff or due to furlough. For example, the insurer may be willing to defer premium payments for a specific time.
Each insurer has its own set of practices and conditions, so you should check with them specifically before agreeing to your policy. And if you have one in place already, it's worth giving them a call to see what their stance is on lost income related to Covid.
Which type of policy should I get?
If Covid has you thinking about life insurance, you may wonder which type of coverage is best for you. Life insurance is highly customizable, and there’s no one-size-fits-all approach. Saying that, there are two primary options to choose from.
A term policy covers you for a specific amount of time, typically between five and 30 years. During this time, you are covered should the worst happen, and your beneficiaries will receive a payout after you pass. If you didn't die during the coverage term (which is good news, of course), then your policy ends, and you would need to renew if you wanted to cover yourself again. Just remember that life insurance costs more as you get older, so you would be required to pay a higher premium than your initial policy.
The other option is a permanent policy, which doesn't expire and continues for as long as you make the payments. Permanent life insurance is more expensive than term coverage, but it's also more economical in the long term as your premiums never increase. Unlike term coverage, a permanent policy is more than just a death benefit when you pass. You can actually access it while you're still alive, as it grows wealth over time via a cash-value element. It's also tax-free, so unlike other investment accounts, you can access your wealth without paying any tax.
Essentially, a permanent life insurance policy works like this: you pay into two pots, one for your death benefit and one for your cash-value element. Both of these increase over time, and you can take a 0% loan against the cash value later in life. Because you’re loaning from yourself, there’s no need to pay tax, with the loan cleared via the death benefit when you pass. However, the death benefit has also increased over time, which means you will still have plenty to leave to your loved ones.
Sounds promising, right? Find out everything you need to know about permanent life insurance with our in-depth guide.
What about life insurance riders?
You can also get riders, which are add-ons to life insurance policies. They help you customize your coverage so you can tailor it to meet your needs. Most riders cost extra, though some are free, while others might be included in your policy.
Popular life insurance riders include:
- Guaranteed Insurability Rider – purchase additional coverage without the need for a medical exam
- Accelerated death benefits – unlock your death benefit before you pass
- Long-term care rider – offers nursing or home care later on in life
- Waiver of premium rider – stop paying premiums on your policy if you become disabled, are unable to work, or can’t pay for your coverage
- Term insurance rider – added to whole life policies to provide a fixed amount of term insurance for a set time
- Child term rider – coverage if your child passes before a certain age
- Return of premium rider – a refund of the premiums paid on a term life insurance policy if the policyholder doesn’t die during the term.
In conclusion: Should I get life insurance as a response to Covid?
If we're completely honest, we don't think your desire to get life insurance should be brought on by Covid. That's not to say that you shouldn't get coverage, however. Life insurance is something you should give serious consideration to regardless of global pandemics. And with permanent policies offering more than just a death benefit, a life insurance policy could work as an investment account that sees you grow wealth over time completely tax-free.