Chapter 3 Long-term care insurance

Question 1

Premiums: Methods of funding

Answer 1

• Single payments
• Regular payments
• restricted regular payments that either stop: at certain age or during defined level of disability.
• retrospective payment, from the equity released after sale of the home.

Regular premiums will usually escalate in line with the chosen benefit escalation rate and will include waiver of premiums on triggering the disability benefit.

Question 2

Premiums: Guaranteed terms

Answer 2

• Long-term care insurers may provide both guaranteed and reviewable products.
• Older people with fixed incomes may choose these options because they cannot afford an additional premium or a reduced benefit.
• Insurers recognise that for ages 70 to 75 the effectiveness of reviewing is limited and therefore the guarantee has less significance.
• guaranteed premiums will include a substantial loading compared to reviewable premiums.

Question 3

Immediate needs products

Answer 3

• They product individuals needing care from their uncertain survival duration, and thereby provide more certainty of their capital costs.
• The insurance provides a guaranteed lifetime income on payment of a single premium.
• The premium is calculated based on individual’s health status.
• Unlike pre-funded plans these have immediacy of need.
• For the consumer the insurance premium may help determine the most appropriate nursing home.
• Some plans seek to immunise the insured against escalation clauses to future care costs by pre-agreeing escalation rates.
• The benefit amounts could be level or at a fixed rate.

Question 4

Immediate needs benefits structure:

Answer 4

• The policyholder can also select a death benefit. This could be structured as:
• A minimum payment period
• by amortising the single premium
• by providing capital protection of part of the single premium i.e. part of the premium will be returned on death.

Question 5

Variants of Long-term care insurance design: Aims of Unit linked products

Answer 5

• single premium unit-linked long term care insurance products are a further alternative.
• it was recognized that a product with no surrender or death benefit is unattractive.
• unit linked solution aimed to be primarily a flexible investment contract and secondly a long term care product.

Question 6

Definition: intermediate care

Answer 6

Personal care that focuses on recuperation following an acute event.

Intention = to reduce avoidable hospital admission and minimise dependence on ongoing LTC.

Generally intensive therapy and support

Question 7

Advantages and Disadvantages of varying trigger and benefit levels (like tiered)

Answer 7

Pros:

• If benefits start at earlier point for cheaper, may start to improve health before worse deterioration and higher cost of care
• May be better match for customer need&raquo_space; Likely to sell better + Better customer experience
• if novel design, may attract more people

Cons:

• More complex design:
• • Greater administration involved with policies (greater cost)
• • More literature and training required at sales (greater cost)
• • Difficult to price
• Potentially more costly if premium waivers also included