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The State of Income Insurance Post-Covid

5 min

To say that the Covid-19 pandemic has left its mark on businesses and consumers alike would be a complete understatement. The world was definitely not ready to handle such fast and unexpected changes. The impact of the financial losses pushed several businesses to shut down. Companies which survived the pandemic, however, did so thanks to their ability to quickly adapt to the new situation.

In fact, according to the Insurance Information Institute, the effects of the pandemic on the insurance industry were not as drastic as they had been originally feared. On the contrary, in 2021, and despite the challenges caused by the pandemic, the industry field has witnessed a growth in profit when compared to previous years.

Numbers back up this claim, especially in the case of insurtechs. Worldwide investments in insurtechs have gone up from $1 billion in 2004 to $7.2 billion in 2019. Interestingly, these numbers have gone even higher following the pandemic, reaching a staggering $14.6 billion in 2021.

Granted, many changes have taken place in the insurance field following the pandemic. More specifically, insurance companies offering income insurance had to cater their policies and adapt to their consumers' new needs.

Read along to familiarize yourself with the changes in income insurance and how they affect our insurance world today.

But first, what is income insurance?

Income insurance, also known as disability insurance, is a type of insurance policy that provides a source of income in the event that an individual becomes unable to work due to an illness or injury. The policy typically pays a portion of the individual's regular income, usually around 60-70%, for a specified period of time or until the individual can return to work.

Income insurance can be purchased as an individual policy or as part of a group insurance plan provided by an employer. This type of insurance can be important for individuals who rely on their income to support themselves and their families, as it provides a safety net in the event that they are unable to work due to accidents and/or illnesses.

There are different types of income insurance, each designed to provide different types and levels of coverage depending on the individual's needs and circumstances.

  1. Short-term disability insurance: This type of insurance provides benefits for a shorter period of time, typically up to six months, to help cover expenses during a temporary disability. This can include illnesses, injuries, or recovery from a medical procedure.

  2. Long-term disability insurance: This type of insurance provides benefits for a longer period of time, typically until retirement age, to help cover expenses during a longer-term disability. This can include more serious illnesses, injuries, or chronic conditions that prevent an individual from working for an extended period of time.

  3. Business overhead expense insurance: This type of insurance covers the expenses of running a business if the owner or a key employee becomes disabled and unable to work. This can include rent, utilities, salaries, and other necessary expenses.

  4. Key person disability insurance: This type of insurance provides coverage for businesses to protect against the financial impact of a key employee's disability. It helps to cover the cost of recruiting, hiring, and training a replacement, as well as the loss of revenue that may result from the absence of the key employee.

Income Insurance Post-Covid

Regardless of the type, many changes were noted regarding income insurance. These can be divided into two main categories: changes affecting businesses and changes affecting consumers.

Effect #1: Increase in claims 

The first change that income insurance has witnessed following the pandemic is the increase in claims. The COVID-19 pandemic has caused more people to file claims for income insurance in the United States. The Council for Disability Awareness (CDA) reported that there was a 20% increase in claims for short-term disability insurance during the first half of 2020 compared to the same time period in 2019. Additionally, the CDA reported a 28% increase in the number of new long-term disability insurance claims during the first half of 2020 compared to the first half of 2019.

These increases in claims can be attributed to the fact that many people have been unable to work due to illness or quarantine requirements related to COVID-19. For example, people may have become sick with COVID-19 themselves or have needed to quarantine because they were exposed to the virus. This has resulted in more people needing to rely on income insurance to help support themselves financially while they are unable to work. In this case, the number of short-term disability insurance claims increased because the inability to work due to COVID-19 did not last long.

Effect #2: Changes in underwriting

Another change that occurred to income insurance is related to the underwriting of the policies. Some insurers have changed their underwriting criteria for income insurance policies in response to the pandemic. For example, some insurers are now asking additional questions about recent travel, exposure to the virus, and whether the policyholder has been tested for COVID-19. 

Insurers are also considering the increased risk of certain occupations due to the pandemic, such as healthcare workers and essential employees who are at a higher risk of exposure to the virus. Some insurers may also exclude coverage for COVID-19 or related conditions, particularly for policies issued after the pandemic began.

Effect #3: Changes in benefits

Some insurers have modified their income insurance policies to include benefits for individuals who are unable to work due to COVID-19. For example, some policies now offer benefits for individuals who are in quarantine due to exposure to the virus. Some insurers also offer short-term disability benefits to individuals who cannot work due to COVID-19 symptoms. Some long-term disability policies now include coverage for post-viral fatigue syndrome, which can be a long-term complication of COVID-19.

Effect #4: Financial challenges for insurers

The increase in income insurance claims related to COVID-19 has put financial pressure on insurers. Some insurers have adjusted their pricing and underwriting policies for income insurance to account for the increased risk of claims due to the pandemic. For example, some insurers have increased premiums or reduced benefits for income insurance policies issued after the pandemic began. There may also be changes to the availability of income insurance in the future, particularly for certain high-risk occupations or individuals diagnosed with COVID-19.

Effect #5: Shifts in pricing and coverage options

Some insurance companies have raised their prices for income insurance policies in response to the increased demand and higher risk associated with COVID-19. However, this was not the case for all insurance companies, many of which have taken advantage of the situation to gain new consumers. As such, several companies have kept their prices stable or even lowered them to attract new customers.

On the other hand, many insurance companies have introduced more flexible coverage options, such as short-term policies or policies that provide coverage for COVID-19 specifically. This allows individuals to purchase the coverage that best meets their needs and budget without committing to a long-term policy. As a result, some insurance companies are considering offering insurance policies specifically tailored to pandemics.

Effect #6: Telemedicine

The field of telemedicine has seen immense growth in recent years, and the COVID-19 pandemic played a huge role in advancing this area. Put briefly, telemedicine involves using technology to provide health care remotely. Usually, this care is provided through phone, video calls, or internet services.

Because COVID-19 patients had to stay quarantined and not leave their houses, many relied on telemedicine to receive the necessary healthcare. As a result, many income insurance policies now include telemedicine services coverage, allowing policyholders to consult with a doctor or medical professional remotely. This has become especially important during the pandemic, as more people seek to minimize their exposure to the virus by avoiding in-person doctor's visits.

The bottom line

When compared to other industries, the insurance field is probably one of the few fields that witnessed a boon following the pandemic. There's a reason why the insurance market is growing every year, and that's because of its ability to adapt to any change quickly. The insurance field is ready to answer a new need with the utmost efficiency and speed whenever a new need arises.

If you are interested in learning more about income insurance and what the future holds for it, keep an eye on Asteya's blogs!


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