COVID-19 is sure to kill you, but life insurance rates haven’t changed

I’m preparing to teach a class at Florida Atlantic University and one of my talking points will be “look at insurance rates if you want to understand the risk of data loss.” In other words, a risk cannot be unquantifiable if there are insurance companies willing to sell coverage for that risk.

Then it occurred to me that we could calibrate our level of coronapanic to what insurance companies are doing. The media informs us that life expectancy has plummeted in the United States. Healthy young people are being felled by the mighty Delta variant and it is urgent for them to get vaccinated (so that the headline can read “Healthy young vaccinated person killed by COVID-19″? See “Nearly 60% of hospitalized COVID-19 patients in Israel fully vaccinated”).

Insurance companies do have a health screening procedure for their larger policies, e.g., trying to exclude those with heart conditions, morbid obesity, etc. If COVID-19 is a significant risk for those the insurance companies consider “healthy” then rates have surely gone up, right?

“Has COVID-19 made life insurance more expensive? These researchers say they have the answer” (MarketWatch, December 2020):

The coronavirus pandemic has produced grim numbers that keep rising, like case counts, hospitalization rates and deaths.

But there’s [one] that hasn’t increased this year: the cost of life insurance.

“We find limited evidence that life insurance companies increased premiums or decreased policy offerings due to COVID-19,” researchers said Monday in a study analyzing more than 800,000 life insurance-policy quotes from almost 100 companies between 2014 and October 2020.

University of Kentucky and Illinois State University economists did discover fewer policies being extended to the oldest of potential policyholders, above age 75. But even then, the cost of those premiums did not noticeably increase.

How are we able to sustain our high level of panic if the insurance companies aren’t adjusting their rates?


13 thoughts on “COVID-19 is sure to kill you, but life insurance rates haven’t changed

  1. My concern (which remains high) about COVID-19 is morbidity, not mortality. The 30-year old marathon runner who winds up with the lung capacity of an 80-year old chain smoker, the top programmer with measurable cognitive loss, the would-be father with reduced sperm count.

    None of those things are going to show up in life insurance rates, at least immediately.

    It’s the same concern I have about motorcycling: I have little concern with the elevated risk of death per VMT (vehicle mile traveled): what worries me is the possibility of brain damage, paralysis, or severe joint damage.

    (Otherwise, I think we are mostly in agreement: even these medical risks definitely do not justify abrogating the Bill of Rights, violating the Nuremberg Code, and abolishing private property in direct contempt of the Supreme Court)

    • It’s the same concern I have about motorcycling: I have little concern with the elevated risk of death per VMT (vehicle mile traveled): what worries me is the possibility of brain damage, paralysis, or severe joint damage.

      This is why I recently sold my Kawasaki Ninja 500, and didn’t want to mess up my long-awaited and well-planned retirement.

    • If you run short of things to worry about (and that does not seem likely) what about the pole dancers whose pickings among geriatric paramours are now sadly diminished, the shopkeepers unable to unload freezer cases full of Ben & Jerry’s ice cream because of the diminished number of morbidly obese, and the manufacturers of high fructose corn syrup many of whose customers have now bitten the dust.

  2. No need to adjust rates when you can simply cancel the cover for COVID. At least that’s what’s going on around here.

    • Jvvk: In the U.S., if an insurance company wanted to exclude COVID-19 deaths it would have to get regulatory approval from each state in which such a policy was offered (and I’m not sure who would buy life insurance that excluded COVID-19 since that is the cause of death that is highlighted to consumers as the most likely).

  3. Generally, life insurance is a product that must be sold.

    My employer provides a life insurance policy at no cost to the employee providing a benefit equal to the employee’s annual salary.

  4. Sounds like an opportunity for arbitrage! Can you take out life insurance policies on random anti-vax senior citizens? Quick before the insurance companies find an out!

  5. Isn’t any signal about the payouts showing up in their financial statements by this point, given the overwhelming early skew in the fatality distribution? Do insurance companies publish that information for shareholders?

    Every time there’s a “natural disaster” we hear estimates on the magnitude of the hits insurance companies expect to bear, why aren’t we seeing the same kind of data with COVID? It’s only the Most Important Story in the World (after all the other ones.)

  6. Life insurance is usually priced for 30 years till age of 70 or maybe 80, need to check fine print.
    Monthly rates are of course progressively higher for older buyers and age dying risks are factored in. So Phil’s point about negligible coronavirus dying risk for young adults being confirmed by insurance pricing that treats them as noise is valid

  7. What about long term disability policies. Long covid has really done some damage to some people and it’s not clear that some of them won’t end up disabled.

    • Mike: I would expect disability insurance payouts to be reduced as a result of COVID-19 and coronapanic shutdowns. While some people may claim that all they can do for the next 50 years is sit on their butts at home #BecauseLongCOVID, the only thing that employers are asking of employees is to sit on their butts at home for the next 50 years. So a person who says “I have long COVID” should not meet the technical definition of “disabled” so long as he/she/ze/they is able to type and speak on Zoom. Consider further that a lot of working-age people aren’t commuting to work anymore and therefore are less likely to become disabled as a result of a car accident.

    • I’m not sure, but I think LTD policies pay up to age 65. And an LTD policy can be designed to pay out if one cannot do the same job that one was doing before becoming disabled (e.g. Boca Raton-based plastic surgeon rich bastard) or if one cannot do any job. My rich bastard medical doctor brother has the latter policy, which is of course more expensive. LTD policies pay out something like 60% of one’s pre-disability income, and it’s exempt from federal income tax.

      At about age 30, I tried to buy an LTD policy , but could only find one insurer that would sell one to me. I ended up at a job that sponsored (though not subsidized) an LTD plan, and it’s cost has increased from $40 to $60/mo over the past ten years, with a ten-week waiting period (which is covered by my Short Term Disability plan).

      Or you could just get a police or firefighter job, and get injured whether on the job or not, and collect 25% to 100% of your salary for life, whether you get another job or not. Which might explain why 25% of the police & fire retirees in my FL city are on disability pensions. The city has never denied a disability pension and does no investigative follow up as to the validity of the disability.

      Or just move to Puerto Rico, where something like 50% of all adults are on SSDI.

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