Chapter 2 - Critical illness insurance

Question 1

Forms of benefit for critical illness

Answer 1

• lump sum upon diagnosis
• regular instalments with outstanding payable on death
• lump sum can be used to buy an impaired life annuity

Question 2

Critical illness may be considered to be a hybrid with the benefit payable in any of the following ways:

Answer 2

1. upon the happening of the event, independent of its extent
2. on reaching a defined degree of impairment
3. on undergoing a surgical procedure

Question 3

Characteristic of illness/condition that make it appropriate for inclusion in a critical illness product

Answer 3

1. It is a condition perceived by the public to be serious and occur frequently
2. Each condition covered can be defined clearly so that there is no ambiguity at time of claim
3. Sufficient data are available to price the benefit

Question 4

Major conditions

Answer 4

1. Heart attack
2. Cancer
3. Stroke
4. Coronary Artery By-pass Graft

Question 5

Tiered benefits

Answer 5

• Variant to standard CI insurance policy in which, for one or more covered illnesses, the benefit payment is linked to the severity of the disease. A proportion of the full benefit is paid out
• Further payments may be made from balance of full sum insured if the disease advances

Question 6

Reasons for offering tiered benefits

Answer 6

1. the CI insurance product becomes more comprehensive
2. the payments more closely match the financial need, reducing the incentive for anti-selection and for exaggeration of symptoms at claims stage
3. multiple claims are possible which enhances customer satisfaction and retention
4. permits insurer to differentiate itself
5. it makes comparison more difficult