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A lot is changing during the COVID-19 outbreak. Life insurance isn't one of them.
In the wake of the new coronavirus, the Federal Reserve has made several major cuts to interest rates, and the stock market has fallen in ways not seen since the 1980s. Stocks are cheap, and prices are rising on some household basics, but there's one price expected to stay constant no matter what happens in the market: the cost of term life insurance.
There are two types of life insurance: Term life insurance, a favorite among experts for its relatively low prices, offers coverage that only lasts for a set number of years, ranging from 30 years to as little as two.
The other type, whole or permanent life insurance coverage, is guaranteed to pay out eventually whenever the covered person dies, without the term limit, and can be tapped early for a cash payout. But, it can cost six to 10 times as much as term life coverage, so is generally recommended only for specific situations.
Since whole life policies work in part as an investment - meaning that values depend largely on events happening in the stock market - policyholders could see some changes. But for term insurance, experts expect the cost should stay the same.
Life insurance prices depend on a variety of factors
There are many factors that influence the premium you'll see on your life insurance policy.
- Interest rates: Companies invest the money you spend on premiums to make money. For whole life policies, which work somewhat like a forced savings account, insurance companies use the money you spend on premiums to grow your policy's value.
- The company's expenses: Companies have overhead expenses, like employees, building costs, and more. These expenses can add up and cost money.
- Mortality tables: These tables look at risk, and help the company determine how likely it is that a benefit will have to be paid out. "Life insurance is based off of actuarial tables, which judge your mortality. And, there's an influence on it based off of claims history and what's going on," says Nicholas Mancuso, a life insurance expert and senior operations manager at insurance comparison site Policygenius.
- Your individual circumstances: Each person's health history is different, and it can change the policy's prices quite a bit. Things like smoking habits; your age, height, and weight; and your personal health history can play a role in your pricing.
Prices shouldn't change for term life insurance policyholders
While experts agree that it's too early to tell for sure what will happen with life insurance coverage, they don't expect to see big changes for term policies.
Mark Sayre, head of risk solutions at online life insurance agency Haven Life, tells Business Insider that term insurance policies may be less affected by a falling stock market. "Term life insurance is much less interest rate-sensitive," he says. "I think where you may see price increases or price changes is more on the permanent insurance side where interest rates are a much bigger part of pricing."
With term life pricing, current events play a much smaller role. "We take a much longer-term view, and therefore the product is less susceptible to short-term events like this," Sayre says. Haven Life offers only term life policies issued through Mass Mutual.
The fact that the cost of term life remains constant means there's no downside to applying now. "If you're a healthy young person and you're applying for life insurance, your rates shouldn't be changed due to this coronavirus," says Allison Kade, the editorial director at Fabric, an online life insurance agency. "On the back end, the underwriting process is the same if you were to apply today as if you were to apply two months ago."
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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