Chapter 2 - Health and care insurance products (Critical illness insurance)

Question 1

Critical Illness insurance

Answer 1

Lump sum payable on a defined event. Lump sum can be paid in instalments.

Not designed to indemnify the policyholder.

Can be provided on a stand-alone policy or as a rider benefit.

Question 2

Characteristics of conditions insured under critical illness products

Answer 2

• Condition perceived by the public to be serious and to occur frequently
• Each condition can be defined clearly so that there is no ambiguity at the time of claim
• sufficient data are available to price the benefit

Question 3

Terminal illness

Answer 3

Any condition that is expected to result in the person’s death within a twelve-month period

Question 4

Children’s benefit

Answer 4

Cover can be provided for each child of the policyholder, usually until they reach the age of 18.

Claims will not terminate the policy. policy will only cease on policyholder’s claim

Question 5

Tiered benefits

Answer 5

The payment of the sum insured is linked to the severity of the disease.

Thus a proportion is paid out, a proportion that depends on the progress or extent of the illness at the time that the claim is made.

Premiums do not typically reduce with any proportionate payment.

Question 6

Main reasons for offering tiered benefits

Answer 6

CAMP C

• The CI insurance product becomes more COMPREHENSIVE; a benefit is offered at levels of disease progression that would not have triggered payment under a more standard CI insurance contract
• AS a variant on the standard product, it permits the insurer to differentiate itself from its competitors
• MULTIPLE claims are possible, which enhances policyholder satisfaction and retention
• The PAYMENTS, part or whole, more closely match the financial need, reducing the incentive for anti-selection and for “exaggeration” of symptoms at the claim stage
• It makes COMPARISONS more difficult ( and the insurer’s product potentially more profitable)

Question 7

In which events may a CI product become payable

Answer 7

• Upon the happening of an event, independent of its extent. eg stroke
• On reaching a defined degree of impairment. eg. losing the ability to walk unaided
• On undergoing a surgical procedure. eg. having a heart bypass procedure

Question 8

What does it mean if a CI policy is provided as a rider to the policy

Answer 8

• The sum assured amount relating to the CI is paid on the diagnosis of the CI and the sum assured amount relating to the death benefit is paid on the death of the life insured

Question 9

What does it mean if a CI policy is provided as a accelerated critical illness benefit on term or WOL assurance policies

Answer 9

• The sum assured is paid on diagnosis of the insured critical illness or death, whichever comes first.
• It may also be structured in a way where part of the sum assured is paid on the occurrence of the specified CI and the remainder of the sum assured is paid on the death of the Life insured