Throughout the pandemic, the life insurance industry highlighted the fact that people were apparently becoming far more eager to buy coverage than they had been in recent years. However, the extent to which interest rose has been a point of some debate, and a number of studies have examined the data to get a better understanding of how people's new concerns about their own financial realities led them to reconsider life insurance.
Industry data suggests that the average American needs about $200,000 worth of life insurance to cover all financial considerations in the event of their unexpected death, but that most people have nowhere near that amount. The current coverage gap is close to $12 trillion because most people go without, or simply have low-value group insurance through work (that also goes away if they change jobs).
Fortunately for the industry, and many Americans, the pandemic seems to have spurred a lot of interest in life coverage, and a highly publicized buying spree, with applications increasing 4% on an annual basis in 2020. Perhaps not surprisingly, this surge was been driven largely by people under the age of 60 and, in particular, those under 44, according to new industry analysis and polling from Deloitte. Meanwhile, applications among people over 60 actually dropped last year.
Moreover, 40% of people who are underinsured say they are now interested in increasing their coverage levels specifically because of the pandemic.
This tended to be especially true among people who previously carried little to no life insurance. In all, 33% of people buying individual coverage for the first time said they want to increase the amount they have to cover household costs in the event of their death, and another 7% indicated they were making this decision because they lost their employer-sponsored group coverage during the pandemic.
However, even among people who don't plan to buy life insurance in the near future, 15% said they still want to increase their life insurance protection to cover household expenses at some point, the survey found.
Interestingly, though, people who considered buying life insurance but ultimately did not do so tended to make that decision based on declining cases of coronavirus in their area. Indeed, 35% said the drop in local risk led them to steer away from buying the coverage they previously thought they needed.
Understanding the shift
There have been plenty of indications that consumers are more interested in buying life insurance, Investopedia noted. The question is whether that level of interest is translating into more sales. While the U.S.'s 4% increase in life insurance applications was the highest year-over-year growth observed since 2001, Google searches for the term "life insurance" increased 50% on an annual basis between March and May 2020. And while some insurers didn't necessarily see that growth translate to actual sales, others reported sharp increases in sales — not across all avenues, though. Specifically, it was sales completed online that drove these increases.
Meanwhile, the industry has to consider that this all came at a time when millions of Americans unexpectedly found themselves out of work, making it harder to justify even affordable term life insurance. As such, it's possible that there will be competing urges at play going forward in a post-pandemic world. On the one hand, people may not have that same impetus to seek coverage, as with the people who said they became less interested in coverage once cases began declining in their areas. But on the other, if they are back on sturdier financial ground and continue to value life insurance, they may be more likely to take advantage of their newfound opportunities and get coverage for what might be the first time ever.
For that reason alone, Swiss Re says, there could be a "life insurance boom" in the coming months.
Giving them options
If people are more interested in life insurance coverage but still on the fence about actually obtaining it, insurers should note that consumers may be enticed by hybrid coverage options. As LIMRA found in a recent survey, 60% of Americans say they would consider purchasing combination life/long-term care coverage, rather than just life coverage, and 25% indicated they would be very likely to do so. This was particularly true of millennials, 35% of whom said they would be "extremely likely" to consider such options.
Among the top five reasons people would consider hybrid coverage, it should come as little surprise that the most common answers were cost-related. Specifically, 35% indicated they were worried that standalone long-term care coverage would deplete their savings, and 33% said that they believe a combination product would be a better use of their current assets.
A look at how consumers view their finances
Of course, as the economic impact of these difficulties continue to wane, consumers are still keeping a tight watch on their household budgets. The good news is that nearly two-thirds of Americans believe their finances will fully recover from the effects of the pandemic within a year, a Doxo survey found. However, there's also a lot of lost ground that needs to be made up. During the COVID crisis, 70% of Americans scaled back their household spending in at least one way, including 6% who cut back on life insurance, and 4% delayed paying their premiums when possible. On the other hand, 8% said they used the money from their stimulus checks to cover their life insurance premium payments.
It remains to be seen whether these trends will hold, but the more life insurers can do to follow through on outreach efforts, craft hybrid products that appeal to consumers and highlight how inexpensive even robust coverage typically is, the better off both they and interested parties will be. Making those initial connections is important, but consistently communicating about how new products may help policyholders' changing needs could continue to grow these relationships for years or even decades to come.