3. Health and Care products - LTCI

Question 1

Meeting specific needs - LTCI

Answer 1

• main need met: financial protection against the costs of care and assistance when a person becomes unable to look after themselves

care needs met in old age include
- domestic support
- live-in care
- residential care
- medical care

Needs met by LTCI product
- financing of care at home, housing costs, care costs, any aids required when person unable to look after themselves
- financing care in specialised facilities, e.g. care centres
- may offer idemnity against cost of LTC
- provide other support - e.g. choosing service provider
- provide respite for informal carers by providing temporary nursing care at one’s home
- facilitate costs of care in informal settings - e.g. change in home such as stair-lifts
- could provide care for elderly family member living abroad

Question 2

Product specific risk - LTCI (generic from notes)

Answer 2

• main risk relates to transition probabilities in underlying multiple-state model
• claim inception probabilities, transition probabilities, if more than one claim state
• significant risk of anti-selection and from selective withdrawals
• significant reserves may be built up in advance of claim starting (investment risk)
• potential cost of benefits once claim commence high, compounded by high claim inception rates –> significant reserves
• when asset share negative, financial risk from withdrawals
• additional risk for cover for care
• significant marketing/ reputational risk as policyholder may expect benefits to be sufficient to cover eventual costs of care

Question 3

Long-term care

Answer 3

• all forms of continuing personal, nursing, associated domestic services for people who are unable to look after themselves without some degree of support
• may be provided at home, or in care centre, or state-sponsored setting, or care home setting

Question 3

Costs of care can be divided

Answer 3

• living costs: food, clothing, heating
• housing costs: rent, mortgage, council tax
• personal care: additional costs of being looked after

Question 4

Formal vs informal care

Answer 4

• care can be formal/ informal
• supply of informal care mainly from extended family, influenced by:
• availability of viable alternatives
• proportion of women working
• geographic dispersion of families
• attitudes of different generations

Question 5

Pre-funded vs immediate needs

Answer 5

Pre-funded
- purchased by relatively healthy people to protect against risk of future disability
- single premium at outset/ level annual premium throughout life
- benefit payment dependent on claim definition - triggered by single / multiple set of events
- usually defined as not being able to undertake specified number of activities of daily living (ADLs): washing, dressing, toileting, transferring, mobility, feeding
- may be a mental impairment (overriding) trigger
- different benefits payable based on level of disability (sliding scale)
- rider on PMI, natural –> PMI covers acute condition treatment and LTC pays for care needed as result of disabling chronic conditions

Immediate needs
- purchased by long-term claimants to protect against uncertain survival duration
- benefits can be indemnity-based or fixed cash amounts
- benefit options: deferred period length, rate of benefit escalation
- assistive devices may be provided
- death benefits are sometimes provided
- risk of windfall benefits with a cash benefit plan (payments without financial loss being incurred) - claim estimation easier
- premium calculated on health status of applicant (not indemnity)
- benefit amount could level or escalate

Question 6

Methods of funding LTC

Answer 6

• single premium
• regular premium
• restricted payments that stop: certain age, during defined level of disability (WoP)
• retrospective payment, from equity released at sale of home

Long-term nature of LTC and large variance of present value claims –> guaranteed premiums include substantial contingency loading

Question 7

UL investment product

Answer 7

• benefits in unit fund at time claim used to pay LTC benefits
• once fund used up, non-unit fund used
• would apply if the contract was being used for protection

If fund protected
- all benefits paid from non-unit fund
- to pay these benefits, risk charge taken from unit fund each month must be sufficiently high
- apply if the contract was sold as an investment vehicle that has LTCI benefits
- unit fund will be returned to policyholder as lump sum
- such plans more attractive than protection plans where all premiums paid are lost on insured death

Question 8

Periods to be aware of

Answer 8

• deferred period chosen at outset that is set
• period during which LTC benefit paid from unit fund - depend on size of fund at time of claim and benefit level
• period during which LTC benefits paid from non-unit fund - until death/ recovery