How has the Canadian life insurance industry changed since COVID-19?

From the housing market to the technology sector, the COVID-19 pandemic has significantly disrupted all industries – and the life insurance industry was no exception. Here’s how insurance companies and policyholders responded during a time of economic and health uncertainties.

The impact of COVID-19 on life insurance claims

Across the country, COVID-19 has caused over 51,000 deaths in total. It’s no surprise that this significant loss of life resulted in insurers having to pay out an unprecedented number of claims.

According to the CHLIA, insurers paid out $154 million in individual and group life insurance claims for pandemic-related deaths in 2020. Death benefits weren’t the only payouts needed as a result of COVID, however, as an additional $150 million in disability benefits (on top of the projected amount for 2020) was paid out to support workers during recovery. And of course, the travel insurance industry was also overtly hit with $950 million in claims – largely due to trip cancellation.

Below, we outline the total cost of life insurance claims in 2020, 2021, and 2022, as well as the breakdown between death benefits and living benefits (which includes disability benefits, cash value surrenders, and dividends paid out by insurers).

Did the COVID vaccine impact life insurance applications in Canada?

While there have been rumours and misinformation suggesting that receiving a COVID-19 vaccine could negatively affect life insurance applications, this is not the case. In 2021, the Canadian Life & Health Insurance Association issued a statement to reassure the public that vaccination status does not have an impact on a policyholder's ability to obtain coverage or benefits – highlighting that the claims have no basis in fact whatsoever. 

How has Canada’s life insurance industry changed since the pandemic?

Beyond the unprecedented number of claims paid out by insurers, COVID-19 also served as a pivotal point for the life insurance industry in many other ways. The pandemic spurred overall market growth, drove innovation in products and processes, and heightened awareness of living benefits – let’s take a look at these key areas.

Growth in Canada’s overall life insurance market

1. Increase in awareness – The global pandemic undoubtedly brought mortality and financial vulnerability to the forefront of people’s minds, leading to a notable increase in awareness for life insurance – having the right policy in place not only protects your loved ones but also provides you with peace of mind during the time you need it most.

LIMRA reported 2023 as a record year of sales for life insurance, showing steady growth in a post-pandemic market. New annualized premiums (also known as the total amount of premiums received by insurers for the year) grew by 4% to $1.86 billion. Sales are only expected to grow further in 2024.

Below is a table outlining the growth in the different types of life insurance in Canada in 2023, regarding the new annualized premium and total policy count. Notably, while term life and whole life insurance products contributed significantly to the record year of sales, universal life insurance saw a decline.

This makes sense as universal life insurance is a much more complex product due to its flexible investment component. While term life has the most affordable premiums, whole life comes with guaranteed investment returns which is much more limited in risk.

2. Increase in coverage amounts – In addition to the increase in life insurance sales, Canadians are also opting for higher coverage amounts in their policies. Yes, the COVID-19 pandemic was a wake-up call to many, highlighting the importance of financial security with fear – but on top of that, it also exacerbated inflation during a time of economic uncertainty.

The rising cost of home ownership, for one, has been a major topic of discussion. While the pandemic initially led to record low interest rates – which spurred a wave of home buying as Canadians rushed to take advantage of more affordable borrowing – that cheap borrowing environment was short-lived, as the Bank of Canada increased its benchmark rate a historic 10 times between March 2022 and July 2023, bringing it from 0.25% to 5%. As a result, those who have a variable mortgage rate have seen their monthly mortgage payments increase significantly. And while the Bank of Canada recently announced the long-awaited rate cut (down to 4.75%), home ownership across the board still isn’t cheap, as mortgage rates remain much higher than in the early days of the pandemic

While mortgages go hand-in-hand with home insurance, it’s often overlooked that life insurance can be just as important. It can help secure the family home for your loved ones in the unfortunate event of your passing. But as owning a home becomes more costly (along with the overall cost of living), Canadians may need to reconsider coverage amounts on their current policy or opt for higher coverage limits when purchasing a brand new policy. 

Below is a table outlining the total life insurance coverage nationwide, as well as the average coverage per household over time, sourced from various editions of CHLIA’s Fact Book. It’s no surprise that there has been an increase each year from 2019 to 2022 – in correlation with the rising cost of living.  

Innovation with life insurance products and processes

While the pandemic accelerated the growth in technology – as work-from-home became the norm and virtual gatherings replaced in-person interactions – the life insurance industry wasn’t exempt from all the digital changes. In this post-pandemic era, online shopping for coverage products is increasingly becoming more common. While the older generation becomes more in tune with online transactions, this is all happening while the younger generation starts to look into purchasing their very first policy.

According to the 2023 Barometer Study (conducted by LIMRA and Life Happens), more younger adults claimed a preference for buying life insurance online over working with a financial expert – this marked a significant shift as although online buying has seen growth within the last decade, this was the first time it was designated as the top preference. The value of working with an expert is still recognized, however, as almost half of Millennials (48%) and Gen Z (49%) claimed they would do their research online but ultimately make the purchase with in-person assistance.

Comparison sites (such as Ratehub.ca) offer innovative solutions when it comes to finding the right product for your coverage needs. By providing us with a few quick details online, we can connect you with a licensed life insurance broker who will guide you throughout the process of securing your policy –  it’s an ideal combination of online convenience, paired with human expertise to assist you with such an important financial decision.

Many companies also offer more streamlined processes, such as for no medical life insurance – a product in which you won’t need to complete a medical exam with a healthcare professional before getting approved for coverage. While there may be limitations to these policies, it can be ideal for you if you prefer convenient applications or have pre-existing health conditions that could complicate a traditional underwriting process.

Increased awareness of living benefits

1. Critical illness insurance – The pandemic most definitely highlighted the necessity of being prepared for sudden, unexpected health issues. According to a Fall 2023 report from the Government of Canada, a survey revealed that 58.2% of adults who had longer-term symptoms continued to experience them. 

Critical illness insurance provides a lump-sum payment in the event you’re diagnosed with a covered illness (e.g. cancer, stroke). The funds can then be used to combat any financial strain, offering a solution to implications with income loss, medical expenses, and more. This type of coverage is often limited in employer-paid benefit plans, so it's important to consider supplementation on your own.

Also read: Life insurance for chronic illness – What you need to know

It’s important to note that while COVID-19 itself typically isn’t a covered illness under these policies, it may cover certain diagnoses as a result of having long COVID. For instance, major organ transplants are commonly covered, and if you need a lung transplant as a result of the infection, you may be able to make a critical illness insurance claim. 

2. Disability insurance – Notably, the pandemic has also led to an increased focus on disability as many individuals faced prolonged complications that affected their ability to work. According to the same government survey, 100,000 adults weren’t able to return to studies or work because of long-term symptoms related to COVID-19. 

Disability insurance provides regular payments while you’re unable to work due to a covered condition (e.g. physical injury, mental illness) – acting as a form of income replacement. There are coverage options for both short-term and long-term disability. Again, this type of coverage is often limited in group benefits plans, so be sure to consider supplemental coverage.

Different policies will classify what constitutes a disability differently – like critical illness insurance, COVID-19 likely won’t be an insured condition, but the longer-term effects of the virus (such as chronic fatigue) could potentially be covered. Many disability policies are also evolving to recognize mental health conditions – such as severe anxiety, depression, and stress-related disorders – as valid reasons for a claim.

The bottom line

The life insurance sector wasn’t immune to the lasting effects of COVID-19. From an increase in awareness of coverage needs to an increase in innovation for industry processes, the pandemic has undoubtedly reshaped the industry as a whole.

Also read

• How does inflation impact my insurance?
• The top life insurance misconceptions in Canada
• Why aren’t more Millennials and Gen Z buying life insurance?