Last spring at PolicyAppraisal.com, we wondered aloud about what effect the Covid-19 pandemic would have on life insurance policies. Sadly, we knew that many people were going to succumb to the coronavirus and that this would likely have an impact on life expectancies and how insurance companies view individual policyholders. At the time, we spoke to several agents, representing large institutions, and the typical response was that the wheels of change turn very slowly in the life insurance world and that actuarial tables generally don’t vary too much year over year, even during strange times like these. However, we recently learned that COVID-19 has indeed had a dramatic impact on life expectancies in the United States. In fact, in 2020 the average American’s life expectancies plunged by a full year. This is remarkable news.
We will likely jump into the finer points of the federal government’s study at a later date, but we expect that this revelation will have a dramatic impact on the life settlement market, in both the short and long term. The average American lifespan dropped from 78.8 years to 77.8 years – a full 12 months. Note that a difference in life expectancy of a full year can have a dramatic difference in the life insurance settlement equation, and we are already expecting that it will change how policies appraise. Offers should go up.
A story in the New York Times offered some of the details on the news. The federal researcher who produced the report said she was shocked by these numbers, and that we haven’t seen a decline of that magnitude in decades.
Dr. Mary T. Bassett, a former New York City Health Commissioner who is now a professor of health and human rights at Harvard said that we may see U.S. life expectancies stagnate or decline for some time to come. She was referencing some of the racial inequalities that the study showed. Life expectancies of the Black population declined by 2.77 years. Life expectancies for the average Hispanic dropped by 1.9 years while the average for a white American dropped by 0.8 years. The gap between Black and white Americans, which had been narrowing, is now six years. Dr. Bassett said she expected life expectancies for Hispanics to continue to decline as the Hispanic population has been heavily impacted by Covid-19.
At PolicyAppraisal.com, we have always reminded our clients that the life settlement market is dynamic and impacted by many factors including classic supply/demand, policy availability, and the current level of purchasing capital “on the street.” We monitor all of those factors, but it is undeniable that life expectancy is a cornerstone of the policy value equation. Shorter life expectancies mean larger offers.
We urge all agents and advisors, who have considered or are planning to consider a life settlement for their clients, to immediately get those policies appraised. We are already recalculating offers with this data in mind. Even small changes in life expectancy can dramatically impact the value of a policy. These shifts are monumental.