Chapter 3 - Long-term Care Insurance

Question 1

3 costs of care

Answer 1

1. Livingg costs
2. Housing costs
3. Personal care

Question 1

2 different types of long term care insurance

Answer 1

1. Pre-funded product
2. Immediate needs plan

Question 2

4 methods of funding LTCI

Answer 2

1. Single payments
2. Regular payments
3. Restricted regular payments that either stop:
   
   • at certain age
   • during defined level of disability
4. Retrospective payment, from equity released after sale of the home

Question 3

Death benefit under immediate needs could be structred as follows (3):

Answer 3

1. Minimum payment period
2. Amortising the single premium
3. By providing capital protection of part of the single premium

Question 4

Considerations to take into account when constructing a plan: (4)

Answer 4

• Policyholders’ tax positions
• insurer’s tax position
• regulatory capital
• benefits flexibility

Question 5

Advantages and disadvantages to the conpany of offering a LTCI plan with cash benefits

Answer 5

+ avoids the problem of estimating the amount of each claim
+ because there is less uncertainty about the expected claim costs, contigency loadings in prms will be smaller, resulting in lower prms
+ company will not need to organise contracts with providers to deliver care, will save money

• PH may be led to believe that policy cover comprehensive, but when claim is may find out that cash is insufficient to buy adequate care
  PH may complain that salesperson misled them. May lead to company paying claims that wee not allwed for in the prm base

Question 6

How can regular charges from a unit fund to the non-unit fund be charged? (2)

Answer 6

1. Cancelling units
2. Reducing unit price

Question 7

Regular charges that might be made from unit fund: (3)

Answer 7

1. Risk charges (these are used to cover any protection offered by the contract)
2. Fund management charges
3. Policy admin charges

Question 8

Different levels of fund protection under unit linked investment olans for LTC: (3)

Answer 8

1. Protecting entire investment fund
2. Protecting the initial investment
3. Allowing the entire fund to be exhausted

Question 9

Disadvantages of unit linked products: (3)

Answer 9

1. Complexity that will act as a barrier to sales
2. Most consumers will need considerable amount of initial and on-going financial advice
3. This will add to sales cost

Question 10

Needs that is met by LTCI (6)

Answer 10

1. Financing of care at home
2. Financing care in specialised facility
3. Offers financing towards higher levels of care
4. May idemnify patient against cost of long term care, depending on policy specifics
5. May provide support in choosing service provider
6. Facilitate costs of care in informal care settings (eg stairlifts)
7. Reduce strain on government for welfare for old age care