Life Insurance Payouts See Highest Increase In Over 100 Years

Photo: KnowInsiders

Life insurance has become one of the most popular long-term financial planning tools. To use it effectively, you need to know how and when life insurance payouts are made to beneficiaries and how quickly benefits will be paid.

Life insurance benefits and claims totaled $747.4 billion in 2020. This amount includes life insurance death benefits, annuity benefits, disability benefits and other payouts and compares with $762.0 billion in 2019. The largest payout in 2020 was $323.4 billion, for surrender benefits and withdrawals from life insurance contracts made to policyholders who terminated their policies early or withdrew cash from their policies.

Life/Annuity Insurance Benefits And Claims, 2016-2020

($000)

(1) Excludes benefits paid by health insurance companies and property/casualty insurance companies.

Source: NAIC data, sourced from S&P Global Market Intelligence, Insurance Information Institute.

How Do Life Insurance Payouts Work?

After the insured dies, the life insurance proceeds go to the beneficiaries listed on the policy. Once they file a claim for the death benefits, the insurance company will review the policy and, if they find no reasons to deny the claim, will issue the payout.

Who Gets the Life Insurance Payout?

Life insurance companies can only pay the proceeds to those listed as beneficiaries since the life insurance policy is a legal contract. Policyowners can name anyone as a beneficiary, from their spouse or ex-spouse to children, siblings, parents, business partners, a charitable organization, or a trust. Whoever they choose, beneficiary designations need to be very clear and follow the requirements of the life insurance policy. When no beneficiary is named on the policy, the life insurance proceeds will either go to the estate or will be distributed to the next of kin. If you are the sole beneficiary, you will receive the entire death benefit. If there are multiple beneficiaries, each will get their allocated share.

An improper beneficiary designation or change can lead to beneficiary disputes which will cause payout delays. Contesting a beneficiary designation is too complex and stressful to go through without an attorney, especially while you are grieving the loss of your loved one. In such cases, you need the assistance of an experienced life insurance lawyer who can guide you through the process.

Life insurance payouts spiked in 2020 — largest rise since 1918 flu pandemic

Photo: The Wall Street Journal

The COVID-19 pandemic sent life insurance payouts soaring to the highest level in a single year ever in 2020 and drove the largest year-over-year spike since the 1918 pandemic, an industry group said Thursday.

A recent study by the American Council of Life Insurers found that death benefits rose 15.4 percent in 2020, to a whopping $90.43 billion - up from $78.36 billion the year before.

That is the largest it has increased year-over-year since 1918 when payments surged 41 percent, the data shows.

The COVID-related increase was less than expected early in the pandemic because many of the victims were older Americans, who typically have smaller policies - if they even have a policy.

But the pandemic also spurred the fastest rise in the sales of insurance policies in 25 years, with assets increasing 7.7 percent to $8.2 trillion in 2020 when combined with returns on some of the insurers' investments.

The death payout uptick was the highest year over year since the 1918 flu epidemic, which resulted in death payment increases that surpassed 40%, according to the report.

In all, 1.8 million worldwide deaths in 2020 were attributed to COVID, according to the World Health Organization. However, the organization said on its website that the actual death toll was likely closer to 3 million last year since some countries lack the technology to properly register deaths.

In the U.S., a reported 385,343 people died of COVID-19 last year, according to the U.S. Centers for Disease Control.

Besides driving more life insurance payouts, COVID-19 has also led to a dramatic increase in life insurance policies in the last 25 years, according to The Wall Street Journal.

As technology and health advancements lead to longer lives for aging populations, more people are concerned about outliving their savings, according to PYMNTS. About 70% of retired individuals will need some form of long-term care, according to the U.S. Department of Health and Human Services. However, under one-third of retirees are comfortable with the funds earmarked for such care.

Insurance premiums — like most everything in the wake of the pandemic — continue to rise. A healthy 55-year-old man could pay between $1,375 to $3,685 a year for insurance, while a woman the same age and health could pay $2,150 to $6,400 a year for the same coverage.

In addition to the physical ramifications of the pandemic, COVID-19 has negatively impacted people’s mental health. In response, CVS Health earlier this year began offering access to licensed clinical social workers via virtual or in-person sessions. Counseling was rolled out at select locations in Florida, New Jersey, Pennsylvania and Texas, with plans to expand to additional locations.

Canadian life and health insurers paid $154 million last year

The latest statistics published on Tuesday by the Canadian Life and Health Insurance Association (CLHIA) include details about benefit payouts related to the pandemic, as well as premium growth in life insurance and annuities.

An additional $150 million in disability claims was paid in 2020 above projections to support recovering workers.

“The crisis tested and demonstrated the resilience of the life and health insurance industry and the importance of our products for Canadians’ well being,” said Stephen Frank, president and CEO of the CLHIA, in the report.

He noted the insurers’ pandemic response, including measures such as premium reductions and deferrals, and investment in online access to benefits.

As a result of the measures, “over 26 million Canadians ended 2020 with access to medications and other health care supports — which is approximately the same number of Canadians who had coverage at the start of the year,” Frank said.

Overall, the insurers paid $14.3 billion in life insurance benefits in 2020, $36.6 billion in health insurance benefits, and $46.2 billion in retirement benefits, the report said. The total of roughly $97 billion compared to a record $103 billion in 2019, when $53.3 billion was paid in retirement benefits.

Total benefits paid for life, health and retirement have increased more than 40% from a decade ago, the report said. In 2019, that figure was 60%.

Premium growth was up slightly. Life and health insurers collected $123 billion in premium revenues last year (including $3.7 billion from foreign branches operating in Canada), the report said — up from $122 billion in 2019.

Life insurance premiums helped drive the increase, up 3.3%, followed by annuities (including segregated funds), up 1.9%. Health insurance premiums were down 2%.

Individual life insurance coverage continued to grow, accounting for 64% of total policies in force, up from 56% in 2010, the report said. The increase was driven mostly by term insurance.

Average life insurance protection per household in Canada was $442,000 in 2020, up from $432,000 in 2019.

COVID-19: Insurers expect to pay up to £2.5 billion for UK insurance claims

ABI members expect to pay up to £2.5 billion for COVID-19 insurance claims incurred in 2020 according to the latest estimates from the Association of British Insurers published today.

The latest estimates include:

• £2 billion for COVID-19 business interruption claims.

• £204 million paid from Covid-19 related protection insurance claims, including life, critical illness, and income protection insurance claims.

• £152 million expected to be paid on travel insurance claims.

• £121 million expected to be paid across other general insurance products, including events, weddings, and liability insurance.

Of these claims:

• 123,000 claims have been settled with payment across all of the above business lines; a further 9,000 have received partial payments as of mid-January 2021.

• Over two-thirds of a billion pounds (£697 million) had been paid out for these claims as of mid-January 2021.

In addition, Lloyd’s previously estimated a £500 million cost of UK Covid claims, taking the current overall estimate up to £3 billion for UK Covid insurance claims.

Huw Evans, the ABI’s Director-General, said:

“The Covid-19 pandemic is unprecedented in its impact and will be one of the biggest insured events of recent times. These latest estimates demonstrate the range of support ABI members expect to offer their customers as a result of Covid-19 related claims across a wide range of insurance policies. This data was collected from individual firms by the ABI in mid-late January, and millions of pounds continue to be paid out every week in claims settlements.

“The industry response also includes vital support to families who have lost a loved one to Covid who are receiving life insurance payments.

“However, we recognise the pandemic has also illustrated some uncomfortable gaps between what people expected to be covered for and what their policy was designed for. We need to learn lessons from this unprecedented event and redouble our efforts to improve consumers’ trust in insurance products.”

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