Excess deaths due to COVID-19 led to a surge in life insurance claims in 2020.
U.S. life insurers paid out $87.5 billion in benefits — 15% more than they paid out in 2019, according to the Insurance Information Institute. That’s the highest annual rise in payouts since the last pandemic a century ago, data from the American Council of Life Insurers (ACLI) shows. One company on the Policygenius platform saw a 17% rise in death claims from 2020 to 2021 according to the 2022 Policygenius Life Insurance Trends Report.
Confronted with the loss of loved ones and our own mortality, Americans collectively purchased a total of $3.3 trillion in new life insurance coverage in 2020. The average policy size has been growing over the last decade to its current level of $183,780, according to ACLI. Sales of individual policies were up 18% by the third quarter of 2021, says Catherine Theroux, a spokesperson for LIMRA, a financial industry trade group.
Online sales and accelerated underwriting, a no-medical-exam option, has made it easier to get term life insurance during the pandemic. Fifty-six percent of life insurance applications submitted through Policygenius from October to December 2021 were for no-medical-exam policies, which rely on digital health information for approval, according to the 2022 Policygenius Life Insurance Trend Report.
→ Read the full report for more on how life insurance shopping has changed
While Luis Rosa, a certified financial planner, hasn’t noticed more interest in life insurance among his clients, the pandemic has been an effective, if morbid, call to action, he says.
“I’ve been able to facilitate the life insurance conversation easier with younger clients, using COVID-19 as an example,” Rosa says. “It’s easier to show how things outside of our control can derail our plans, so it’s best to be proactive to help mitigate the risks.”
Who needs life insurance
Most people would benefit from having life insurance. Rosa says he typically recommends coverage to anyone whose death would financially impact another person. That can include a spouse, children, an elderly parent, or a business partner.
Many U.S. workers get minimal term life insurance coverage through a group policy sponsored by their employer. That’s a good starting point, but having an additional individual policy ensures you’ll be fully covered if you leave your job.
A permanent life insurance policy can protect your heirs and build wealth. Unlike term life insurance, which comes with lower premiums but expires after a set period of time, permanent policies contain a savings account that may be accessible during your lifetime.
The tax-free death benefit from a life insurance policy can help survivors cover funeral expenses, pay bills, and continue making progress toward their financial goals.
For example, says Rosa, a newly married couple planning to start a family should have life insurance. A payout would likely help the surviving spouse maintain their standard of living and pay for future expenses like childcare or college.
Many people don’t consider buying life insurance until middle age or later. But by then it can be cost prohibitive because premiums are determined in part by age and health. You can often lock in a lower rate when you’re younger and healthier.
For example, a healthy 35-year-old male could pay about $31 a month for a 20-year term life insurance policy with $500,000 of coverage. A healthy 45-year-old could pay about $61 a month for the same policy. Over 20 years of premium payments, the person who bought their policy in their 30s saves about $7,200.
The savings is even greater for a 30-something who buys a whole life insurance policy, in which average monthly premiums range from several hundred to thousands of dollars, and payments usually continue until the policyholder’s death.
It's too soon to tell whether the pandemic’s impact on the life insurance industry will lead to more expensive premiums in the future. But as current rates prove, waiting to buy a policy can be a costly mistake.
How to buy life insurance
Buying life insurance can be intimidating, but following these steps will make it easier:
Calculate how much coverage you need. A policy worth 10 to 15 times your annual income is a good benchmark for coverage. If you think you may need more, a financial planner or fiduciary advisor can help assess your situation.
Choose a policy type.
Gather personal information (ex. proof of citizenship, identity, and income).
Work with an independent broker like Policygenius to compare rates from multiple insurers.
Complete the application and phone interview, where you’ll be asked about your health history, hobbies, and finances. This should take between 15 and 30 minutes.
Decide if a no-medical-exam policy or medical exam policy is right for you.
Wait for the underwriting results. Accelerated underwriting could get you approved for a policy in under two weeks.
Decide if you need to add riders to your policy. It depends on financial factors like your asset and debt levels and your income. Life circumstances, including your relationship status, number of dependents, cost of living, and job, also play a role.
If your application is denied, your life insurance agent or broker can explain why. You may need to make lifestyle changes and reapply or consider alternative insurance products. If your application is accepted, you can sign the documents and pay your first premium.
Life insurance is something you pay for for years, if not the rest of your life. Make sure you’re getting the best deal on the policy that’s right for you by comparing rates from multiple companies.
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