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How to buy life insurance during a recession
You can still buy coverage — but take the time to research your insurer’s financial standing.
If you have dependents, it’s worth considering a policy if you can comfortably afford it. And there are ways to make your premiums more affordable.
What's in this guide?
- Can I buy life insurance during a recession?
- Do life insurance rates increase during a recession?
- How do I know if my insurer can still pay out my policy?
- Should I buy life insurance during a recession?
- Compare life insurance companies
- How to find cheap life insurance
- Ask an expert: What financial products are more or less important than life insurance during a recession?
- Ask an expert: If you have a permanent policy, what are the best investments during a recession?
- Bottom line
Can I buy life insurance during a recession?
Yes — as long as you can pay your premiums.
As part of your application, your insurer will request information about your finances. You can expect to be asked about your income and place of employment, and possibly your net worth.
These details help your insurer determine whether you can afford a policy, as well as how much coverage you can buy. For example, if you earn $30,000 a year and you want to buy a policy worth $1 million, you’ll need to prove that you have other income to support such a large policy.
Compare life insurance ratesCompare quotes for life insurance policies starting at $15/month.
Do life insurance rates increase during a recession?
Not necessarily. Despite the economic uncertainty, life insurance companies don’t usually raise their rates during a recession. They have investment managers that prepare for short-term volatility, and a lot of money in the bank — so to say — to withstand less profitable periods.
However, if a recession lasts longer than expected, insurers may incrementally increase their rates. If that happens, it shouldn’t affect term life insurance premiums too much. But it may impact the cost of permanent policies, like whole, universal and variable life insurance.
That’s because permanent policies are tied to the market. When interest rates drop — as they often do in a recession — insurers’ profits on those products may drop, too. Plus, permanent policies last a lifetime, so the insurer has to assume a higher risk to issue them.
To protect their bottom lines, life insurance companies might raise their rates. But again, it’s rare for a recession to last so long that insurers are forced to do that.
I already have a life insurance policy. Will my premium change?
No. Once your life insurance policy is issued, your insurer can’t change your premium — even during a recession.
If you’re struggling to pay your premiums during this time, you’re not alone. Before missing a payment, ask your life insurance company if they have a premium relief program. Many state insurance departments instructed insurers to offer flexible payment plans and extend grace periods in light of COVID-19.
How do I know if my insurer can still pay out my policy?
As with any other industry, life insurance companies can go bankrupt — but there are protections in place for policyholders.
Every state has a guaranty association, which steps in if a company can’t cover its debts and takes over the policy payouts. There are limits, though. Typically, guaranty associations can pay up to $300,000 in death benefits, and $100,000 in cash value.
Many insurance companies also have reinsurance companies, which act as a financial backup. If your insurer can’t pay out your full claim, the reinsurance company will make up the difference.
How to pick a financially stable life insurance company
When you’re comparing life insurance companies, look at their financial strength ratings.
These ratings reflect an insurer’s financial stability, and point to its ability to pay claims in the foreseeable future.
There are four major ratings in the US. Each agency has its own ratings system, and these are the best ratings for each:
- AM Best — A++
- Moody’s — Aaa
- Fitch — AAA
- Standard & Poor — AAA
If you come across an insurer with a poor rating, that means they may not have the cash reserves to meet their financial obligations.
Ratings are updated regularly. Thanks to the recession, AM Best has downgraded the ratings of some life insurance companies in the US at the time of writing. These include:
- American Income Life Insurance Company
- Brooke Life Insurance Company
- Genworth Life Insurance Company
- Globe Life and Accident Insurance Company
- Jackson National Life insurance Company
- Liberty National Life Insurance Company
- National Income Life Insurance Company
- Ohio National Life Insurance Company
- PHL Variable Insurance Company
- Transamerica Life Insurance Company
This doesn’t necessarily mean these companies now have a bad rating — but it’s lower than it was before the recession hit. If you’re in the market for a policy, choose a financially stable company by comparing ratings.
Should I buy life insurance during a recession?
It depends on your financial situation and whether or not you have emergency savings.
If you have loved ones who rely on your income and you don’t have enough savings to self-insure, a policy can provide a financial safety net. That way, if you die prematurely, your family can use the payout to stay afloat and figure out their next move.
Most people put the death benefit towards these expenses:
- Mortgage or rent payments, which could help your family to stay in their home
- Everyday living expenses, like groceries, utility bills and car insurance
- Childcare or school tuition
- Paying off outstanding debt, such as student loans and credit cards
- End-of-life costs, like a funeral or unpaid medical bills
- Care for ageing or ill parents
If you have an investment portfolio or retirement policy, a life insurance policy can also help to make up for any losses in the stock market.
Average costs of life insurance
To give you an idea of how much you’ll pay for a policy, these are the average monthly rates for a healthy individual looking for a 20-year term life policy.
Compare life insurance companies
How to find cheap life insurance
There are a few ways to lower your premiums:
- Choose term life insurance. It’s the most affordable policy on offer, and provides protection for a set period of time — like 10, 15 or 20 years.
- Buy a policy as soon as you need it. The younger and healthier you are, the less you’ll pay for coverage — so try to lock in a low rate as soon as possible.
- Go for a medical exam policy. If your goal is to save, opt to take a medical exam because no-exam policies cost three to six times more. The exam itself is a simple physical, and the insurer picks up the tab.
- Manage your health. Insurers assess your BMI, cholesterol levels and blood pressure, and ask about your medical history. If you can prove that you’re leading a healthy lifestyle and have any pre-existing conditions under control, you’ll get a better rate.
- Stick to basic coverage. For low premiums, don’t add riders to your policy unless you really need them.
- Shop around. Rates can vary wildly between insurers, so compare quotes from a range of companies before signing off on a policy.
Life insurance is an important part of financial planning, especially if you have dependents. You can still purchase a policy during a recession, but you’ll want to take a closer look at two things: the cost and the financial stability of your insurer.
To find a policy that fits your budget, compare life insurance companies.
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