All About Estates

LIFE INSURANCE IN THE COVID-19 ERA

As someone who has been around the life insurance industry in a professional and personal capacity for several decades, I am always curious about what motivates people to buy or not buy life insurance.

I understand that few people spend time thinking about the consequences of low-probability events and are therefore disinclined to consider the need for life insurance. I would have thought the COVID-19 pandemic would increase public awareness of the need for life insurance, right? With the world shut down and media reports filled with stories of tragic loss of life, people are increasingly aware that good health and a long life are not givens they can take for granted.

Yet, if you do some online searches, the early indications based on available data to date suggest that even if an initial COVID-19-related bump in applications occurred in some markets, that bump was both limited in time and geographic spread and may be outweighed by a subsequent dip in applications.

Why has COVID-19 had such a seemingly limited impact?

For many of those people not already considering life insurance, data indicates the pandemic has not motivated them to make a purchase. Also, the subsequent drop in searches does not suggest consumers are trying to buy online but finding it difficult to do so. The key reason, of course, may be economic. Most people do not view life insurance as an absolute essential, so if the primary breadwinner has lost, or is at risk of losing, his/her job, it is unlikely they will decide now is the time to spend what little money they may have on life insurance.

Folks in the industry will tell you that the sudden loss of Kobe Bryant likely led to more of an uptick in the purchase of life insurance than Covid-19 has so far. More a personal and immediate connection to many than what may seem like a more remote and not so immediate one to others. Just speculating here.

It may be that COVID-19 will eventually help drive demand for life insurance, but not quite yet. As lockdowns began and people were stuck at home, often juggling work and parental responsibilities, life may have simply become too busy to think about life insurance, especially as many came to grips with social distancing and other disruptive public health measures. We are still in the eye of the pandemic storm, and people have more immediate concerns than life insurance.

I am told people need to be persuaded to buy life insurance and the human-to-human approach remains the most effective. This has given rise to the industry adage: Life insurance is sold, not bought.

Even if there is an increase in online applications, it may not make up for losses incurred from a sales force’s inability to go out and sell. COVID-19 must be hampering the intermediary sales channel. For many developed markets, this merely highlights a problem expected to occur in the next few years anyway as the intermediary market continues to age and shrink.

In recent years, the life insurance industry worldwide has made great strides in making life insurance easier to buy. The focus may now need to shift towards finding ways to make it easier to sell.

In an article in the April 2020 edition of the Tax Letter (This too shall pass by Mark Halpern), the author offers his perspectives on life insurance in the Covid-19 era,  Of note:
•Some underwriters have relaxed medical examination requirements due to the inability to collect blood and urine samples. In such cases, the process is very quick, requiring as little as a single 10-minute phone call, with policies being issued within 72 hours.
• Incorporating a policy into a shareholders’ agreement continues to provide for a guaranteed buyer and market for your equity.
• Policies can be used to fund tax liabilities upon death.
• Current death benefits may not sufficiently cover future requirements as interest rates and markets have tumbled. More insurance may be needed.
• Insurance policies may provide for a useful bolster now that traditional investment accounts have been significantly reduced in value.
• The author predicts that life insurance premiums will increase sharply as low interest rates reduce operating profits.

As a final note, I understand that Covid-19 has led to an increase in demand for final expense (pre-paid funeral) insurance.  I suppose that is not surprising.

Happy Reading and stay safe, and Happy Canada Day!

About Steven Frye
Baker Tilly WM LLP is a leading, independent audit, tax, and business advisory firm based in Vancouver and Toronto, serving clients across Canada. Drawing on well-trained teams across a variety of disciplines, we ensure the alignment of our professional’s skills and experience with client requirements, resulting in exceptional service and business outcomes.

1 Comment

  1. Malcolm Burrows

    June 30, 2020 - 2:23 pm
    Reply

    Steven – Thanks for digging into this one for us. Life insurance and will provide similar functions but are very different in behavioural terms. Malcolm

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