The recent events of the global pandemic of COVID-19 has had global re insurers scrambling to change their underwriting guidelines with their insurance companies. When you take out a life insurance policy or income protection insurance policy the insurance company in New Zealand keeps some of the risk generally and then gives the rest to a reinsurer like Swiss Re or Gen Re. So for example if you took out $1 million of Life Insurance – the insurance cover might hold $400,000 of the Life Insurance internally and then the other $600,000 of cover is covered by the reinsurer.
The reinsurer makes the underwriting guidelines for the various New Zealand insurance companies. So pre COVID-19 it was just business as usual for the insurance companies. General underwriting rules for life insurance look at medical conditions, family medical history, any hazardous pursuits and habits like smoking and drinking and height and weight. Other products particularly income protection type productions such as mortgage protection, income protection, Total and Permanent Disablement cover look at occupation details – what sort of work you do, hours and how much manual work etc.
Contrary to common thinking – life insurance etc is not always easy to get even some young people can be uninsurable or incur big financial loading’s. For example for someone who has Type 1 diabetes, depending on their control of diabetes will generally get around a 175-200% loading on their premiums. They will in most cases be unlikely to get income protection due to too many perceived risks to the insurer.
With COVID-19 the underwriting rule book has changed, for existing insurance cover in New Zealand there is no affect on your policies and the insurers have pandemic insurance cover so there will be no problem in paying out on claims. Generally though the mortality rates of COVID-19 which are a bit over 5% globally and more in the older age bracket would not cause too many issues for NZ based insurance companies.
What it does mean moving forward is that existing life insurance and income protection policies become quite valuable right now as they are guaranteed wordings and can’t be changing. Firstly you already have the cover so you don’t need to go through underwriting hoops, and secondly the wording you have right now might be the best wording you will get for quite some time or perhaps for ever. This needs to be taken into account when moving existing cover from one insurer to another at this time. It is important to avoid the chance that COVID-19 may not be covered under any replacement benefits which are to be issued during this pandemic.
Currently Partners Life has been the first to move quickly on changing their underwriting rules, they had already changed the rules on self employed for income protection earlier in March which has made existing income protection policies for self employed clients that more valuable. Currently they will not offer any agreed value income protection benefits to any new customers – this is income cover which has an agreed value so you just need to prove a loss at claim time as opposed to having to get your financials analysed more thoroughly like in an indemnity income protection policy. All disability covers at Partners Life will have a mental health exclusion for the foreseeable future – whereas in policies pre COVID-19 there is mental health cover which is generally in most income protection policies in New Zealand. They have also changed the wording for premium holiday and premium suspension claims and pushed this out with a 6 month stand down for eligibility.
Other insurers have not moved as quickly with instant changes but treating each submission of new business in a case by case basis. CIGNA for example are treating income protection applications by people working in essential services as a priority. All other application are on a case by case basis. For Life Insurance and Trauma Insurance etc there are heightened risk for certain occupations and employment status, product types and for customers who have certain underlying medical conditions. CIGNA will take these risks into account as they underwrite their customers and will assess each case individually. Redundancy cover which is not commonly sold already has a 6 month stand down period and CIGNA is putting a three-month deferral on the redundancy portion of the policy.
Fidelity Life will look at each insurance application on a case by case basis for example people that previously get life insurance may not be able to currently. For example if you have medical conditions that generally would be accepted by a Life Insurance company – currently some of these conditions would mean if you contracted COVID-19 then you are considered a higher risk of dying. So cover you might have been able to get several weeks ago with an insurance company may no longer be available to you at this time. They are also asking about travel plans in the future – not that many of us have any. And whether you have had exposure to COVID-19 through a known source or cluster. Or have you had COVID-19.
So for those who have current Life Insurance and Income Protection you need to think carefully about several things: moving to another insurer may mean you will not be covered for things you were covered for under your existing policy due to COVID-19. For example income protection insurance policies taken out before COVID-19 will have mental health cover – policies moving forward may no longer offer mental health cover. Getting agreed value income protection and mortgage protection policies is going to be extremely hard for the foreseeable future. Also whilst we are in lock down you cannot get blood tests and medical examinations so you can only apply to certain levels of cover for your income protection right now and also life insurance levels.
Likewise if you intend to cancel your existing life insurance or income protection insurance cover due to budgetary constraints or other reasons it might pay to rethink this carefully. You may never get the same policy wording ever again or more likely for the foreseeable future. Insurers in New Zealand are offering various premium relief or suspension options for your life insurance premiums. These are being rolled out once the reinsurers for each company have set the guidelines.
Once again advice is paramount – some companies will allow you to put premiums on hold with full cover in place, whereas another company will allow you to do that but with just partial cover in place. Some companies such as AIA allow you several options; you can put your premiums on hold for 12 months at which time your cover will reactivate – but no claim will be payable during the suspension period. They also offer a 3 month suspension of premium offer as well where no cover is given during this time. Another option is to remove the direct debit and cover will still be available for the 3 months and then reinstate the direct debit and then starting paying monthly premiums and slowly pay off the premium debt over time with the assistance of the insurer.
As mentioned each insurer: Fidelity Life, Partners Life, AIA, Cigna, Asteron Life have different rules and it pays to get advice from a qualified financial advisor at this time.
It would pay to check your current policy wording as well to make sure there are no exclusions on your Life Insurance policy with COVID-19 in mind. For exampled stripped down Life Insurance policies commonly sold by banks and third party providers such as supermarkets have exclusions on Life Insurance such as acts of Terrorism, strike, riot and/or civil commotion, civil war, military or usurped power. Whereas the Life Insurance policies sold by Life Insurance brokers in most cases do not have these kinds of exclusions. So it makes sense to check your policy wording and get advice with your current policies and if you intend to replace your insurance policy with another. Getting advice right now is paramount and using your financial adviser is more important than ever with the COVID-19 pandemic. Until a vaccine is found or it is completely stamped out in New Zealand we expect these new underwriting rules will apply to new insurance policies and we expect the insurance companies to get even tougher as we move along in terms of placing business with them.
As per a previous article here are the benefits that each of the Life Insurance benefits offer with the current COVID-19 Pandemic.
What your Life Insurance and Income Protection policy covers you for in regards to COVID-19
Life Insurance This will pay out for premature death and/or terminal illness so arguably with our low mortality rate with COVID-19 this is not such a concern for most. However ignoring COVID-19 for a second (yes I know it is hard too!) having life insurance cover in place right now is more important in this strange and troubling time for if you were to die of something else you would want your family protected financially
Trauma Insurance This pays our for named illnesses and injuries with cancer, heart attacks and strokes forming about 75% of claims in New Zealand. However there is a benefit in most of the policies sold by life insurance brokers called an Intensive Care benefit which pays out if you have been admitted to an intensive care ward of a hospital for a certain period of time. Once again a lot of the bank sold trauma products will not have this benefit in them – hence why getting cheap cover seems a good idea at the time and when paying premiums but at claim time it may not seem such a good idea.
Income Protection This covers a portion of your income for sickness and injury if you could not work. So generally if one gets coronavirus the average recovery period is about 2 weeks and most income protection wait periods before the income cover kicks in is about 4 weeks or longer so you wouldn’t get a pay out. However if you were in hospital longer and took longer to recover then you would be eligible for a claim. Also some of the premium income protection policies sold by Life Insurance brokers also have a hospitalisation benefit and Bed Confinement benefit which kicks in after 3 days if you weer admitted to a registered hospital or confined to a bed at home and under the supervision of a registered medical practitioner then you would be eligible for your monthly benefit or a portion of it depending on how long you were in the hospital or bed confinement. Lastly there is mental health cover which is why Partners Life has currently excluded this benefit under their income protection. For example if you became depressed during the COVID-19 pandemic and couldn’t work or lost your job or income and became depressed then you could lodge a claim under the mental health option which would need to be assessed by the correct people. For those who have agreed value products then they can get an agreed level of income paid out without needing to prove financials whereas those on indemnity products would need to prove the best consecutive 52 weeks of the last 3 years for income. Once again if you don’t have a comprehensive income protection policy then these benefits may not be available to you – so check your policy wording.
Mortgage Protection Essentially the same product as income protection insurance just with a different name and treated differently by both the IRD and ACC. But as per the above with income protection then the same options would be available to claim upon. Mortgage protection pays an agreed level of cover so you just need to prove a loss from illness or injury or mental health claim.
Total & Permanent Disablement Insurance (TPD) The claims on this benefit are not as common and generally this means you could never do your job again or you were unable to do some of lifes daily activities such as eating/dressing etc. So you are unlikely to have a claim with COVID-19 with this product. It would be more likely you claim on this for an incident that happens whilst under the COVID-19 pandemic
Health Insurance If you suffer from coronavirus and you are seriously unwell you will be admitted to a public hospital. Private hospitals are not set up for emergency care they are for elective surgery only. However there is a public hospital stay benefit built into most Health Insurance policies which pays out on a daily basis after you have been in hospital for a certain period of time
Funeral Insurance This will cover you for death, however when you take out a funeral insurance policy illness related deaths are generally not covered for 2 years when you first take out a policy. So if you have cover then it would be wise not to change it right now. This type of cover is generally held by the older population and who are more vulnerable from COVID-19. So if you have a funeral policy that has been in place for 2 years then you would be covered if you died from the coronavirus.
Redundancy Insurance Whilst this is probably one of the most important insurance products available right now it is quite ironic that this benefit is hardly ever sold. This is due to its cost and limited cover as it only protects you for 6 months if you were made redundant. However right now this benefit could prove to be quite useful. Banks do tend to sell a bit of this cover either on credit card insurance or tagged onto their stripped down income covers. When you take this cover out you have a 6 month stand down before this benefit becomes payable and there are quite a few questions around potential redundancy. Right now pretty much all companies have stopped offering this benefit and for others they have deferred the benefit for a further 3 months on top of the standard 6 month stand down.
Insurance Cover whilst under COVID-19 pandemic
Whilst it is unlikely that you will claim under Life Insurance or income protection insurance or trauma insurance during the COVID-19 pandemic it does make one feel a bit more vulnerable all the same.
Insurances such as Life Insurance are important and right now with an uncertain time ahead protecting both yours and your loved ones financial future is vitally important. This should be considered if you were thinking of cancelling your insurance cover, replacing your cover with a cheaper company or if you currently don’t have some or any of these insurance covers.