Will a Life Insurance Policy Cover Death Due to COVID-19?

As I write this, Canada has recorded more than 1 million cases of COVID-19 and more than 23,000 deaths as a result. The spread of the virus, and its variants, is not slowing. On April 14, Canada reported 8,596 new cases of the virus and 53 deaths. Hopefully, by the time you read this, the daily numbers will have decreased, but at the moment, that doesn’t look likely.

As deaths mount, so do life insurance claims. In April 2020, Canada’s life insurance claims jumped to more than $500 million, compared to about $440 million in April 2019. Deaths due to COVID-19 represented more than 12% of claims. April numbers for 2021 aren’t in yet, but given the upward trajectory of case numbers, we could expect a further increase in claims year-over-year.

According to consulting firm Deloitte, in the short-term, insurers will be looking at policy applications, waiting periods, and actuarial assumptions. But demand for life insurance may be on the rise in this precarious economy, as more Canadians consider buying a policy or reviewing ones they already have. Since the onset of the pandemic, life insurers have reportedly seen a spike in sales.

Getting life insurance during a pandemic

For consumers, many questions abound as concerns over health and the lingering pandemic take centre stage. But if you already have life insurance coverage, you can breathe easier. With few exceptions, any manner of death is covered by life insurance contracts, including COVID-19. Exceptions may include deaths during the contestability period — the first one to two years of your enrolment — and suicide.

Will your premium go up? Not likely, according to the Canadian Institute of Actuaries. A spokesperson called the first wave of deaths “within the normal range of volatility.” But the impact of the second and third waves are still unknown.

If you’re applying for a new policy, insurers haven’t changed their products yet, but they might consider exclusions if the pandemic proves to be worse than predicted. For now, you may face a deferral for your policy — it won’t take effect until any COVID-19 treatment is completed or you’ve tested negative for the virus.

Contrary to rumours, a COVID-19 vaccination will not affect your premium. Many people on social media claim that getting the vaccine will disqualify you from insurance or affect your payout because of the potential side effects. While insurance companies are setting the record straight, I think they’re too polite. Let me phrase it for them: These rumours are pure, unadulterated, anti-vaxxer gibberish.

When applying for a policy, insurers will ask about any recent travel and your travel plans for the next 12 months. History of, or plans to, visit countries that are COVID-19 hotspots will draw more scrutiny, and insurers may postpone the decision on your policy.

What you should know about applying for a life insurance policy

If you’re new to life insurance, there are a few things to note:

• There’s a good possibility that you will have life insurance coverage in your employee benefits program — group life coverage. It will likely be term coverage. It may be adequate on its own merits. You may be able to opt for a higher deduction for increased coverage, or you may want to supplement it with another term policy.
• There are two types of life insurance. Term-life is strictly insurance — for a particular term, you pay a locked-in premium, and the policy pays out when you die. Whole life is more like an investment portfolio. You’re covered for life and can draw from your reserve while you’re still alive, as long as you can keep up with the premium, which may fluctuate. Whole life policies can cost five to 15 times the price of term-life policies.
• Take the contestability period seriously. Death within this period can be investigated, and payout denied. Taking part in dangerous activities can compromise the claim. For example, if you die in a rock-climbing accident during this period, there will undoubtedly be an investigation, and the claim could be denied.
• If you smoke or vape, you can still qualify for a life policy but expect to pay a higher premium.

Why get life insurance? Because you need it. If you have a spouse, children or other dependents, they’ll need the financial support it brings if you die and are no longer bringing in an income. Plus, if you have a mortgage, it can help pay it off for your survivors.