07. Critical illness insurance Flashcards
What is CIC?
It pays a cash lump sum following diagnosis of one of a number of specified critical illnesses.
What are the main 3 critical illnesses that CIC pays out on?
- cancer
- heart attack
- stroke
Someone under 65 is how many more times likely to suffer a CI than to die?
5 times
What can be paid out if the CIs are less severe?
Reduced sums assured, potentially on a sliding scale of %s
In 1999 the Association of British Insurers (ABI) issued guidance regarding critical illnesses. Why? [2]
- to improve consistency
- and help consumers compare products more easily
Name 4 potential uses of a CIC payout.
- pay off mortgage
- adapt house depending on needs
- new car if required
- any other commitments e.g. school fees
Most newer CIC policies have what kind of term?
A limited term e.g. 20, 25 or 30 years.
When is CIC paid out under a combined LA & CIC?
Death or diagnosis or a CI, whichever comes sooner. Aka “accelerated death payment”
How does a split benefit trust work?
Death benefit held in trust for beneficiaries &
critical illness benefit held for absolute benefit of insured person if there is a claim
For standalone CIC policies (not relevant for combined CIC & LA policies), typically how long is the survival period?
14-30 days.
Children’s cover is an underwriting-free ‘added value’ extra and usually pays out what? [2]
- a set amount e.g. £25k
- or a % of the sum assured with a limit of say 2 claims per policy and 1 claim per child
What does life-cover buy back enable?
For a restricted form of life cover to be taken out without the need for further medical underwriting, which may be difficult to obtain after suffering a CI.
What generally applies for WOP to kick in?
A deferred period.
Where policies are set up on a joint-life basis, what do some insurers allow for?
The policy to be split in the event of a separation or divorce without the need for further underwriting on either party.
What is total and permanent disability?
Effectively a catch-all for a condition for a condition that although not specifically covered, the standard of the insured’s life is so poor they can never live a normal life again.
What are the 4 ABI possible definitions for total & permanent disability?
Unable to do:
- own occupation again
- suited occupation again
- 3 specified work tasks again
- look after oneself again (3 from list)
When is terminal illness benefit paid out, and when is it usually not paid out?
- life expectancy < 12 months
- life expectancy 12 - 18 months
List 6 typical conditions covered by CIC in addition to cancer, heart attack & stroke.
- loss of hearing, speech or sight
- coma (resulting in perm symptoms)
- dementia inc Alzheimers (pre age x)
- loss of hand or foot
- Parkinsons (pre age x)
- brain tumour
- motor neurone disease
- multiple sclerosis
Who is the onus on to prove a CIC payout is due?
Policyholder
Exclusions to payout are largely the same as for IP. Name 5.
- alcohol / drug misuse
- criminal activity
- hazardous activities
- going against medical instruction
- pregnancy
- war disabilities
- self-inflicted injury
CIC underwriting focuses on morbidity. Name 5 important factors affecting premiums.
- age
- medical history of insured
- medical history of insured’s family
- lifestyle factors e.g. alcohol/smoking
Why might a client choose reviewable over guaranteed premiums?
Cheaper.
Name 3 things the insurer will check before payment of a claim.
- the diagnosed illness is covered by the policy
- it was not a pre-existing condition
- policyholder disclosed everything relevant at inception
What happens if a qualifying misrepresentation was deliberate or reckless?
Insurer can void contract and retain premiums.
What happens if a qualifying misrepresentation was careless? [2]
- if insurer would not have entered contract, can void contract but must return premiums
- if insurer would have accepted contract on different terms, can treat contract as if those terms applied i.e. reduce sum assured based on charge of higher premiums
What is a benefit to an EEE of group CIC?
Reduced underwriting making it simpler to purchase.
What is a benefit to an EER of group CIC?
Relatively inexpensive part of an EEE’s benefits package and is often seen as a high added value benefit.
How are individual CIC benefits taxed?
Not a chargeable event so no income tax or CGT.
What is a taxation risk for combined LA & CIC policies under split benefit trusts?
If 1st claim is for CI, money is returned to the policyholder and sits within their estate, IHT issue if they then die before money is spent.
What happens when a Group CIC premium is paid for by the EER?
It is treated as a benefit in kind.
Name 2 advantages and 3disadvantages of CIC.
+ can be used to pay off mortgage or make necessary amendments to home
+ can be used to do bucket list things
- expensive
- not guaranteed condition will be covered
- those with previous health issues may struggle to get cover
CIC vs should IP should be seen as ____.
complementary rather than alternatives.
How might IP & CIC be complementary?
If CIC was used to pay off mortgage, a reduced IP policy may be required to fund essential expenditure.
Why is IP likely to be seem as higher priority for most people?
As it covers a lot more conditions such as back pain or mental illness.
Name 5 adviser considerations when selecting a CIC policy.
- what total & permanent disability options apply?
- is there children’s cover?
- is there WOP?
- is there indexation?
- what is the survival period?
- should policy be set up as stand-alone or combined?
- should policy be set up joint or single life?
- should guaranteed or reviewable premiums be selected?
- claims-paying history of insurers
Severity based cover is a prominent development in the world of CIC.
Name 2 advantages of it.
- it covers many more illnesses (paying out only a pre-specified proportion of the sum insured)
- it allows more than 1 claim if the illness is progressive
