Life Insurance in the Wake of Coronavirus

In the face of the current coronavirus pandemic, life insurance sales are higher than usual. However, between the novelty of the virus, the unknown mortality rate, and the risk-avoidant stance of insurance companies, life insurance is facing some uncertainty.

Let’s clear up some of this confusion.

It’s possible. If you contract COVID-19, a life insurance company will probably put your current application on hold until you’ve made a full recovery.

Typically, life insurance policies require you to take a medical exam. If you have COVID-19, insurance companies will likely require that you wait until you’ve made a full recovery before they conduct a medical exam. Even if you don’t have COVID-19, companies will likely ask if you have symptoms (like fever or dry cough) related to the coronavirus before they arrange a medical exam for you.

Regardless of whether you have a sickness related to COVID-19, it’s not a good idea to take a life insurance medical exam while you're sick. It can negatively affect your results, your rates, and possibly end with a denied application.

Unless you omitted important information or lied on your application, your family (or whomever you named as a beneficiary) will receive a payout if you die while your policy is in force.

The one exception is accidental death and dismemberment (AD&D) policies. AD&D policies don't consider coronavirus (or any other disease) an accident, so an AD&D policy would not pay for death from COVID-19.

Yes, if you got a policy now, it would cover death from COVID-19. Even if you contracted COVID-19 the day your policy was issued, your beneficiary would still get a payout in the event that you died. (Again, that’s as long as you were honest on your application and paid your premiums.)

Right now, insurers are paying extra close attention to applicants’ travel habits. Here are some questions they might ask:

• Did you just come from a high-risk country for COVID-19 like China or Italy? 
• Are you currently in one of those countries? 
• Are you planning to travel there soon? 

If your answer to any of these questions is yes, insurance companies might require a 30-day waiting period before they issue you a policy.

Why the waiting period? Because, historically, the insurance industry relies heavily on data to assess risk and determine pricing. Since nobody knows the exact mortality rate of the coronavirus—and since the pandemic is changing daily—many insurance companies are playing it safe.

It’s even possible some companies will refrain from issuing no-exam life insurance policies—at least until the industry fully understands the risk the COVID-19 pandemic poses to the public.

Remember that honesty is imperative on your application. For instance, if you traveled to a high-risk country and died after contracting COVID-19, your payout might be declined if you weren’t truthful about your travel plans on your application.

The possibility for such a denial is based on something called a two-year contestability period—a standard clause on all life insurance contracts. This clause states that an insurer can investigate a death that occurs up to two years after your policy takes effect, specifically to ensure honesty on the part of the applicant. 

An insurance company won't necessarily deny a payout automatically because of the two-year contestability period—it's just allowed to investigate a bit more.

If you're denied a life insurance policy or required to wait before a company takes your application, you still have several options.

Not every insurance company is handling the COVID-19 pandemic the same way. If one company imposes a waiting period, try another. Also, if you don’t want a medical exam (or want to try to get a policy quicker), consider getting quotes from companies with accelerated underwriting—like Bestow, Haven Life, or Fabric.

Guaranteed-issue life insurance policies are pricey for the coverage you get, but they don’t ask medical questions and don’t require a medical exam. These policies typically have a "graded death benefit," which means they'll pay only a portion of the death benefit within the first two years (or they return the premiums you paid into the policy). Consider a guaranteed-issue policy a last resort if you can't get anything else.

If you’re denied a policy because of COVID-19 or related symptoms, focus on recovery. Once you’re better, your chances of getting life insurance will probably be better too.