COVID-19 has driven up mortality rates, so it’s no surprise that life insurance companies are taking note. Currently, they are reevaluating their requirements for offering coverage, making it harder to get coverage — especially if someone has COVID-19.
There are two ways to buy insurance, as an individual and in a group. While individual policies will be harder to get, so far, at least, group policies are not. Here is a short overview of the individual life insurance market.
Although insurers haven’t yet formally issued new rules regarding the virus, they want applicants to fill out risk questionnaires and undergo medical exams. They are especially interested in learning more about the long term health effects of COVID-19 and how underlying conditions impact it. They know, for instance, that conditions like pneumonia or sepsis triggered by severe cases of COVID-19 can cause permanent damage to a person’s respiratory system. Likewise, if someone with type 2 diabetes, obesity, high blood pressure or a history of smoking contracts the disease, they would be a high-risk prospect.
In both cases, if insurance can even be written for these people, higher rates would apply. Observers say that currently insurers are just being cautious with no fundamental changes expected until next spring. Insurers need to learn more about lingering symptoms among virus survivors. Plus, they need to make sure their rates are supported by actuarial analysis.
The good news for employees who want life insurance is that employers can offer it — without having employees go through questionnaires or medical tests. A good life insurance policy can help protect an employee’s family’s finances, such as replacing lost income, paying debts, paying for college or supplementing retirement savings. It also can be an important factor in attracting and retaining top talent during a time when finding workers has been difficult. Group life insurance premiums are overall lower than individual life insurance policy premiums because insurance companies base group life premiums on the overall risk of the company or group, not on individuals. And, since group life insurance is typically bundled with health insurance, sales and administrative costs usually are low. There are two main types of group life insurance policies:
Term life insurance covers the employee for a specific length of time and usually ends when the employee leaves his job. Employers typically provide term life insurance coverage equal to an employee’s yearly salary and pay the premiums. This is the least expensive type of coverage because it is provided for a limited time.
Whole life insurance — also called permanent — lasts for the duration of the employee’s life. This type of insurance is more expensive. The employee usually pays the premiums for this type of coverage. The policy holder can cash in the policy before they die — making this an investment, although one with a small rate of return.
In addition to determining the type of coverage to offer, employers who want to offer life insurance must determine:
Which employees to cover — for instance, there are nondiscrimination requirements that must be met, such as offering plan benefits to at least 70 percent of all employees and making sure that 85 percent of the participating employees are not key employees.
Which insurance company to use.
Whether employees will be allowed to purchase additional coverage or raise their coverage level.
Whether to pay all or a portion of the premium.
If employees will automatically be covered, or if they must opt in. One consequence of the pandemic is that it has made group life insurance a little more important for many employees. Give us a call if you’re interested in group insurance for your employees.