Chapter 3 - Health and care insurance (Long term care) Flashcards
Long-term care
- All forms of continuing personal or nursing care and associated domestic services for people who are unable to look after themselves without some degree of support, whether provided in their own homes, at a day centre, or in a state-sponsored or care home setting
- The care provided is designed to treat the results of the condition rather than the condition itself.
- It aims to indemnify the insured for the additional costs of day-to-day living when they are in need of long-term care.
- In some cases, there may be a maximum payment. This means that it does not provide full indemnity
How is the cost of long-term care divided up (3)
- Living costs - food, clothing, heating, amenities
- housing costs - rent, mortgage payments and council tax
- personal care - the additional costs of being looked after, arising from frailty or disability
Types of long-term care cover
- Pre-funded plans - are purchased by relatively healthy people to protect them against the risk of future disability ( paid by single or annual premiums)
- Immediate needs plan - are purchased by long-term care claimants to protect them against the uncertain survival duration (paid by single premium)
Pre-funded products: Definition
The benefit payment is dependent upon the claim definition, which may be triggered by a single event or by a multiple set of events.
The single event may itself be depend on a level of visibility and its continuation for a specified period.
The claims trigger requires the policyholder to be incapable of performing a number of these activities alone and without endangering the health or wellbeing of the policyholder or others.
LTC can be provided as a rider to a whole of life insurance. This pays the sum assured on death or accelerates a fixed percentage of the benefit when the long-term care criteria are satisfied.
When LTC is a rider on a PMI policy, the PMI policy pays for the treatment of acute conditions and the LTC rider pays for the care needed as a result of disabling chronic conditions.
Pre-funded products: Benefit types and how its paid
- Single lump sum
- Annuity Certain
- Lifetime benefit subject to ongoing disability
- Restricted benefit ( eg payable for a maximum period, or to a maximum total amount) subject to ongoing disability
Can be defined in money terms, or paid on an indemnity basis
The most basic regular premium products do not provide a death benefit nor a surrender benefit.
Pre-funded products: Premiums
- Single payment
- Regular payments
- Restricted regular payments that either stop at a certain age or during a defined level of disability
- Retrospective payment, from the equity released after the sale of the home
Guaranteed terms
Guaranteed products may be introduced to recognise the fact that policyholders who purchase a long-term care insurance may do so to indemnify themselves against future costs
Immediate needs products
- What are they
- Benefit’s provided
- What is premium based on
- If a death benefit exists, how does the health status of the policyholder affect the single premium
They protect individuals needing care from their uncertain survival duration.
This insurance provide a guaranteed lifetime income on a payment of a single premium
The premium is based on the health status of the applicant.
The benefit amount could be level or escalate, either at a fixed rate or index-linked
A death benefit can also be offered. This could be structured as:
- a minimum payment period
- by amortising the single premium
- by providing capital protection of part of the single premium (part of the premium will be returned on death)
If there exists a death benefit, the policyholders health status doesn’t change the single premium by much as the health status has opposite effects on the LTC benefit & the death benefit, cancelling each other out
How does immediate needs plan differ from impaired life annuities
The product structures differ which include pure endowments, purchased life annuities and disability covers. Tax advantages must be considered.
Unit-linked investment products
This allows for both savings and protection.
If the P/H dies before receiving any LTC, then the beneficiaries can inherit the proceeds of the trust.
Fund protection
If a fund is protected, LTCI benefit are paid only from the non-unit fund & the insured is entitled to a full return of the unit fund on death/surrender
Depending on the level of protection chosen by the PH, the effective deferred period might vary as some benefits will be paid from the unit fund
What is informal care
- Care provided by family members, close relatives
- It has indirect costs in terms of either loss of economic activity, or the price of replacing the care support should it no longer be required
How could the death benefit in LTCI be structured
- A minimum payment period
- By amortising the single premium
- By providing capital protection of part of the single premium ( Part of the single premium will be paid back on death)
Explain the effect on a single premium immediate needs product if a death benefit exists, with the death benefit being the single premium paid less the cash benefits received
- The benefits from the impaired-life annuity are like a series of pure endowments
- The benefit on death is like a decreasing WOL insurance
- The net single premium in each case is the expected cost of the benefits
- For a given annuity payment, poor health will reduce the expected value of the benefits and decrease the purchase price of the annuity
- But, poor health will increase the single premium for the WOL because it increases the expected value of the benefits
- These two effects act in opposite directions on the single premium, so the net change in the single premium will be much smaller than the change in the purchase price of the impaired life annuity with no return of premiums on death
- Similarly, better health will increase the purchase price of the annuity, but decrease the single premium on the WOL, and so the overall effect will be smaller
- So the single premium for a policy with a substantial benefit on death will only change by small amounts for a wide range of changes in the proposer’s state of health
What is the downside of having a fund that is protected
- And if the whole fund is protected
- The protection element is funded by a risk charge that is deducted from the fund each month and a contribution from the unit fund.
- If the whole fund is protected, then there is no deduction from the unit fund, which means that the risk charge will be higher, resulting in a higher premium needed to be paid by the policyholder
