Can life insurance bounce back in a downturn?

The novel coronavirus outbreak brought with it a stunning economic downturn that resulted in tens of millions losing their jobs and facing dire financial situations. Amid this fiscal chaos, however, polls have shown that people now increasingly recognize the value of life insurance. While there may be a disconnect between that recognition and the ability to afford coverage, life insurers may be wondering what the future holds, and there's data to suggest opportunity exists.

In 2011, 63% of Americans had some kind of life insurance coverage, but a number of factors have since come together to negatively affect enrollment. According to the latest Insurance Barometer Study from LIMRA and Life Happens, that share dropped somewhat sharply in the intervening decade, falling to about 54% of people who now have life insurance, but the types of coverage those people carry has changed significantly in the past decade.

Is life insurance headed in the right direction despite the pandemic?

Much of this decline can be attributed to the fact that employers are seemingly less inclined to offer group life insurance coverage as a benefit. At the start of the century, about 1 in 3 people with life insurance had only group coverage, and another 28% had both group and individual policies in their names. Today, those numbers are 27% and 18%, respectively. Combined, those numbers went from roughly 60% having either group-only or group-and-individual coverage to just 45% (a drop of about one-fifth).

At the same time, individual coverage has soared, climbing to 55% today from the 40% seen at the start of 2011. Altogether, 73% of those with life insurance coverage have at least one individual policy in their names.

Digging deeper
Further data from similar surveys LIMRA has conducted in 2020, released as part of the industry's Life Insurance Month, found 36% of Americans without life insurance were committed to buying it before 2021, and that survey was conducted before the pandemic hit. In fact, more than half said during a poll conducted in May that they feel an increased need to seek such coverage specifically because of the pandemic.

The increased recognition that life insurance is valuable was noted by 1 in 6 respondents, who said they didn't have their own policies but knew they needed coverage. The most common reasons for that lack of coverage was it being further down their list of financial priorities and that they were worried about the cost (both around around 2 in 3 respondents).

However, LIMRA data also suggests that people dramatically overestimate those costs. Half of millennials polled believed a basic policy for a healthy person around their age would cost roughly $1,000 annually, but the real premiums would be closer to $160 (a little more than $13 per month).

Seeing the effects already
It should come as no surprise that with several months' worth of runway on the renewed importance of life insurance in consumers' eyes, policy sales are soaring. The latest MIB Life Index shows tremendous year-over-year growth of more than 14% for all coverage application activity, driven in particular by young people. Among people under the age of 45, applications surged by almost 19% from July 2019 to July 2020, well ahead of the 45-59 demographic (up 12.9%). Year-to-date, applications among the under-45 group were up 5.5% and climbing rapidly.

Interestingly, applications among consumers 60 or older were more muted (up 4% year-over-year and down 1.4% year-to-date) but among this group, the number of policies worth $5 million or more increased by 28%.

Overall, the huge step forward in July was a big change even from May and June, which saw annual increases of 5.2% and 1.2%, respectively. July application numbers were up 4% from June alone, however, indicating this record growth may not be ready to slow down just yet.

Making it easier
With the pandemic emphasizing the need for life insurance among potentially millions of Americans, some experts have voiced concerns that it's not actually all that easy for would-be policyholders to officially get approval. Industry insiders told Buffalo television station WKBW that while there has been an uptick in interest, not everyone who wants life insurance coverage these days is going to have an easy time qualifying.

One of the biggest problems people seem to face nowadays is the underwriting process is often longer and more complicated, particularly if a consumer or someone in their household has tested positive for COVID-19. As such, even those who fall into such a category, but are approved for coverage, could end up paying more for that policy.

For these reasons and more, it's incumbent upon insurers to do more to guarantee potential clients can quickly and easily find more information about their coverage options, and even apply online. When people have easier access to coverage that they largely believe they need, they'll be far more likely to seek it out.