Impacts of COVID 19 on Insurance
As COVID 19 continues to infect people worldwide and a vaccine is yet to be discovered, we are all anxious and uncertain of the impacts this will have on businesses and our personal lives. Many of our clients have used this time as an opportunity to review their financial situation, reflect on their future goals and ensure that their loved ones will be taken care of should the unplanned happen. As a result, we’ve received many questions recently about insurance and whether it is a strategy that can even be considered at the moment (given lock-downs and interruptions to regular business activity). And so I interviewed Greg Jizmejian, an estate planning advisor here at Raymond James Ltd. Greg has over 30 years of experience in the insurance industry. We covered questions such as: What if you’re having trouble paying your insurance premiums? What if you don’t currently have insurance and would like to get some? And whether we should worry about the policies that we have in place with individual insurance providers? Let’s get started.
MARK: We’ve seen a slowdown in the economy due to the pandemic – some people are seeing their income reduced or stopped altogether, many businesses have closed, and as a result people are having to make some difficult choices in terms of their expenses. What are the options that people have in terms of paying premiums on their insurance as a result of COVID 19?
GREG: It’s interesting to see the whole industry reacting very promptly and positively to give clients some flexible options. An important thing to note is that every life or disability insurance contract that is privately owned in Canada comes with a built-in grace period. A grace period is typically a 30-day period in which if a premium is not received on the due date, the coverage will continue for this period of time. This has currently been ‘extended’ up to 90 days by many of the main insurers as long as you qualify for it. Qualifying is just a matter of calling your insurer and explaining your situation. Generally, most of those who have been impacted by COVID 19 will be approved for this extension.
It’s also important to understand that while this will give you some extra breathing room if you need it, the premiums have not been forgiven. Premium payments that have been missed will eventually have to be caught-up after the grace period.
MARK: In these cases, is a ‘payment schedule’ typically worked out with the insurer or are you immediately hit with the bill of the 3 months of missed premium payments as soon as the grace period expires?
GREG: Under normal circumstances, with the 30-day grace period, you do have to catch up with your premiums at the end of the grace period, otherwise you run the risk of surrendering your policy or terminating your contract. Given the unusual circumstances I believe that most insurers will do their best to accommodate clients and come up with a payment strategy for the extended grace period. Since each insurer and situation is different, I recommend individuals reach out to their insurance provider and find out more details as it pertains to their specific case.
There are also other options that might be helpful for people experiencing a cash crunch or financial hardship outside of the grace period. Firstly, if your premium is coming due and you typically pay it annually, you have the option of changing this to a monthly structure. Going from an annual to a monthly premium payment arrangement. While monthly premium payments may cost a little more than an annual premium, this might be a good option for those who can’t pay the immediate large lump sum. Also, many insurance policies have a cash-value component to them. So if you have a permanent life insurance policy like a whole life or universal life policy that have cash surrender values, you could draw on the values or simply allow those values to support the policy for a period of time until you can pick up the payments yourself again.
MARK: For those who don’t currently have insurance policies in place, many are wondering if they can even get life or disability insurance during COVID 19. Have you heard any information from the insurance companies as to how that is currently playing out?
GREG: Given the physical distancing measures, nurses are not seeing clients at the moment, which is definitely a bit of a barrier. But in response, the insurance community has become much more flexible and many insurers have increased the allowable insurance limits without the usual blood and urine samples collected and nurse visit. For example, one insurer has increased the limits up to $2 million for life insurance for those between the ages of 18 - 50, and for those 50 - 60 it has been increased to $1 million. Those who need more insurance than that will have to wait until medicals can be done but even in these cases, there are some arrangements that can be made where we can borrow medical information from the client’s family doctor to support their applications depending on their specific case.
So yes, insurance is being written and conducted during the current circumstances. Electronic applications are being used so that we are not face-to-face with clients and Zoom meetings are being held to virtually witness the signing of applications. For those who are considering getting insurance, you should definitely contact your advisor or insurance agent as there are many options currently available.
MARK: What if you were to test positive for COVID 19? We are all trying our best to stay healthy but in the event that someone does become infected, is the insurance industry making policies harder to get due to issues relating to the coronavirus?
GREG: It’s not a pleasant thing, of course. But for the average person who may get COVID 19 and recover from it, their life carries on no differently than as if they had the flu. So at the moment this is how the insurance industry is treating it. The only difference is that because it is a very new virus, they’ve asked that you are symptom-free for 30 days. Once this period has passed, it’s the rest of the medical questions that are more relevant to your application. They haven’t increased the risk or added any extra charge for those that have been infected.
MARK: Another concern that some clients have, given all of the uncertainty we are facing in the world today, is the safety and security of the insurance companies themselves. Can we depend on them, not just in terms of the policies and the insurance companies being able to pay out, but also in terms of some more permanent insurance? Should we be concerned about the financial stability of the insurance companies?
I will answer that with an absolute no. There is no cause for any concern there. The reality is that the insurance industry is extremely regulated, financed and secured, and in many cases, the cash values that we refer to in policies are actually kept in separate accounts segregated from the general assets of the insurance companies themselves. There’s also an additional layer of security in the insurance industry in Canada via an organization called Asuris that all insurance companies are mandated by the government to participate in. In the event that a financial disaster occurs to any of the member companies, all of the other members would have to step in and finance the losses.
MARK: Thanks Greg, for all this valuable information. Insurance is an important part of financial planning and it’s important that people take the right steps to ensure that should something happen to them, their loved ones will be taken care of. Any other tips for us?
Greg: Use this time as an opportunity to dust off your financial files and take a look at your current situation. And if you have any questions, do seek us out– we’re happy to provide an assessment and if there is a gap, we’ll make some recommendations to take care of it. COVID or no COVID, insurance is an important aspect of financial planning and should be up to date at all times.
Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Mark Shimkovitz, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Securities-related products and services are offered through Raymond James Ltd., Member - Canadian Investor Protection Fund. Insurance products and services products and services are offered through Raymond James Financial Planning Ltd., which is not a Member - Canadian Investor Protection Fund.