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By Martha C. White
February 3, 2021
Money; Getty Images

Amid a pandemic that’s claimed 400,000 American lives and counting, you might expect life insurance rates to have risen. It hasn’t happened yet, but experts warn the respite may end soon.

As life insurance expert Chris Huntley wrote last September in Money, life-insurance premiums actually fell during 2020, continuing a multiyear trend. For example, a 10-year term policy for a 40-year-old, non-smoking female in average health with $500,000 of coverage was priced as low as $27 per month in the fall. Only five years earlier, that same policy cost a whopping 50% more — $41 per month.

An academic paper released in December further confirmed the surprisingly limited effects of the pandemic for life insurance buyers in 2020. The analysis, by researchers at Illinois State University and the University of Kentucky, concluded that, “despite the increase in mortality risk and significant uncertainty….there was “limited evidence that life insurance companies increased premiums or decreased policy offerings due to COVID-19.”

The study’s authors did note a couple of setbacks for consumers from COVID-19 in 2020: Prices went up on the very cheapest policies, and people older than 75 began having difficulty finding insurers who will sell them a life insurance policy at all. But for most people, this is a good time to buy. Here’s why.

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The good news, for now

Assaf Henkin, co-founder and president of Sproutt, an online broker of life and disability insurance, foresees prices being more or less stable in 2021. “I don’t think [buyers] will be negatively impacted by premiums, at least yet,” Henkin says. It’s too early for COVID-19 to have much influence on how insurers price policies, he notes, and “even if some of the carriers start to increase premiums, there are still plenty around that will be competitive.”

Also helping keep a lid on rate hikes, notes industry analysts S&P Global, are that “mortality among the insured population has been lower than that of the general population,” and insurers have been careful about using “appropriate underwriting” — as in assessing risk and pricing policies accordingly — to mitigate the impact” of deaths that are occurring.

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Why rates may eventually rise

Analysts do foresee factors that may eventually see premiums increase. One is that insurers depend on income from (conservatively) investing some of the money they make from premiums. Rock-bottom interest rates are making it harder for these companies to generate enough income from safe, fixed-income investments like bonds, says Cathy Seifert, insurance analyst at CFRA Research. As rates remain at or near record lows, “a prolonged low-interest-rate environment has forced a lot of life insurers to rethink their business mixes,” Seifert says.

Seifert also warns that if low investment income spurs weaker insurers to sell up and leave the market, that too could cause premiums to rise. “If you see a great degree of consolidation around a handful of carriers, that increases their pricing power and rates for coverage may tighten,” she says.

Steve Parrish, co-director of the Center for Retirement Income at the American College of Financial Services adds that a regulatory change passed into law at the end of 2020 also gives insurers more leeway to increase rates. “I can’t say for sure we’ll see an increase, but I think you’re going to hear people say, ‘Grab it while you can,’ ” he says.

If you’re shopping for life insurance, then, you might want to buy now — because experts see the longer-term trend being to higher premiums.

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