There’s no doubt that the coronavirus pandemic has taught us a number of valuable lessons – one of which is how financially vulnerable we are.
Many have witnessed first-hand how quickly life can change and perhaps been reminded of the importance of having financial protection in place.
If you've been motivated to take out life insurance since COVID-19, here’s what you need to know.
What is life insurance?
Life insurance pays out a lump sum to your family or other dependents if you pass away during the term (length) of the policy. It offers peace of mind that your loved ones would be financially protected if you were no longer around to provide for them.
The funds received can be used by your dependents however they wish, but most often the money is used to clear the mortgage and other outstanding debts, cover living costs and fund childcare.
Life insurance premiums can start from as little as £5 a month, but the exact price you pay will depend on factors such as your age, health and lifestyle, occupation, the type of cover you take out and the length of term.
Effect of COVID-19 on life insurance
While coronavirus has had a huge impact on the insurance industry as a whole, the life insurance sector has been left relatively unscathed. There has been no evidence of life insurers pulling out of the market, premiums have remained steady and COVID-related claims are already being paid, according to Emma Walker at broker LifeSearch.
Life insurance is still readily available to buy and – whether new or existing – policies will cover coronavirus.
And, while applying for life insurance often could take longer at the start of the pandemic as insurers updated their underwriting processes, these issues have been largely resolved and application times have improved.
One undeniable change however, is the introduction of COVID-19-specific questions on life insurance application forms. “Insurers are of course asking a few more questions and underwriting has tightened in some areas, especially for those with diabetes, asthma or who might be overweight,” says Walker.
This means that when you run a life insurance quote, you’ll need to answer questions such as:
Within the last 30 days have you:
tested positive for coronavirus?
been advised to self-isolate?
had any symptoms of coronavirus?
been in direct contact with anyone who has been diagnosed with or who is suspected of having coronavirus?’
If you answer yes one or more of these questions, your life insurance application is likely to be postponed – how long for will depend on the insurer but it’s often around a month (after the point of recovery if you actually contracted the virus).
And if you have suffered particularly serious symptoms, for example if you were hospitalised, your application could be postponed for longer.
It's crucial you answer these and all other questions honestly however, and don’t fail to disclose pre-existing conditions. If you ever make a claim and your insurer discovers you were dishonest, it may well be rejected.
Can I still get cover with a pre-existing condition?
The short answer is yes, but it will depend on the type and severity of the condition – and many insurers have become more selective about who they accept.
If your condition puts you at greater risk from COVID-19 – such as asthma and diabetes – or you're aged over 50, you may find it harder to get life insurance cover, while those insurers that do offer cover are likely to charge higher premiums.
If your condition is particularly high risk, the insurer may ask for more medical information or request a report from your GP. You may also need to have a medical examination. These usually only last around 20 to 30 minutes and involve answering some questions about your health and lifestyle, as well as having your height, weight and blood pressure checked, and having a blood sample taken.
If you’re concerned you won’t be able to find cover, it’s worth speaking to an independent broker, such as LifeSearch, whose experts will discuss your options and help find you the most appropriate cover.
Are life insurers still paying out?
Although many consumers have struggled to claim on policies such as travel and wedding insurance as a result of the pandemic, no similar issues have been reported in the life insurance industry.
In fact, data from the Association of British Insurers (ABI) shows that during the height of the COVID-19 crisis, insurers received 7,000 life insurance claims and paid out £90 million – the equivalent of £980,000 every day – to support the families of those who died due to coronavirus.
Every life insurance claim was accepted between March and May this year, with 83% of claims having already been paid out.
What about critical illness cover?
Many life insurance policies allow you to add on critical illness cover for an additional cost. Critical illness cover pays out a tax-free lump sum if you are diagnosed with a specific illness or medical condition listed on your policy. You can then use the funds received to help pay the bills, your mortgage or pay down debts.
The big watch-out, however, is that no matter whether you already have critical illness cover or you’re thinking about taking out a policy, no critical illness product will list coronavirus as a condition. This means you won’t be able to receive a pay-out on your critical illness cover if you are diagnosed with COVID-19.
Where critical illness can provide cover, however, is if you have contracted coronavirus and this leads to severe complications such as a heart attack, stroke or kidney failure. So long as these are specified as critical illnesses on your policy you may be able to claim.
What about income protection insurance?
Income protection insurance pays out a monthly income if you are unable to work due to an accident or illness or – in some cases – redundancy.
Short-term policies pay out for a limited period, usually between one and two years, although it can be up to five. Long-term policies, on the other hand, offer cover for a greater stretch of time – perhaps until retirement or death – and because of this, they are usually more expensive. Long-term policies tend to provide more comprehensive cover and allow you to claim more than once.
Short-term income protection policies will often pay out if you are made redundant, whereas long-term policies won’t. However, according to Walker, redundancy cover hasn’t been available since the spring: “We expect this to return next year, but it’s hard to say at what price and what the exclusions will be.”
The money received from an income protection policy can prove valuable if you are no longer earning a salary or wage. But the main problem with this type of cover is that you won’t usually be able to claim until an agreed deferred ('waiting') period has passed. This is usually somewhere between four weeks and 12 months which means that if you temporarily stop working due to being diagnosed with coronavirus, there’s a chance you will have recovered before you can make a claim.
For new policies with a shorter deferred period of two to four weeks, some insurers have already introduced COVID-related exclusions. This means if you’re looking to take out income protection in the hope that you’ll be covered if you contract the virus, it may not be hugely beneficial.
That said, if you’re particularly high risk, or you’re concerned that you would be off work for a lengthy period of time, income protection may still be worth considering.
Walker believes that there could be many more claims for income protection going forward, partly from a mental health point of view, and partly due to possible long-term COVID-19 symptoms that result in employees taking time off work.