Chapter 5 - H&C insurance products (Income protection) Flashcards

1
Q

What is the aim of IP

A
  • It is to replace part of the income the life insured would have earned if he or she becomes unable to work due to accident or illness
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2
Q

What is the difference between ill-health retirement pension and income protection

A
  • Ill-health retirement pension will be paid for the rest of your life if you are judged to be PERMANENTLY unable to work between now and normal retirement age
  • IP will pay out if you are either temporarily or permanently unable to do your job, and will pay benefits until retirement age
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3
Q

What are the main needs addressed by IP insurance

A
  • Replacement income when the policyholder is unable to continue in his/her own occupation, and cannot earn an income
  • An income stream to match the policyholder’s monthly loan servicing costs
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4
Q

What groups of people perceive the greatest need for IP

A
  • The employer who is keen to pass on the financial responsibility of sick employees to an insurer after a limited period of invalidity
  • The self-employed person, who does not have the comfort of an employer-sponsored scheme and who must purchase individual IP cover
  • Individuals who do not have provision through their employer
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5
Q

What should the general policy conditions aim to do

A

SAT

  • It must be SIMPLE and unambiguous, so as to assist the sales, underwriting and claims processes
  • give some cushion against ADVERSE events over which the office has no control
  • reflect the TRUE intentions of the office
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6
Q

What is replacement ratio

A

It is the ratio of post-claim income to pre-claim income, net of income taxes

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7
Q

What is over-insurance

A

It refers to a higher than appropriate replacement ratio

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8
Q

How can over-insurance arise

A
  • From outset
  • Subsequent over-insurance, through salary not keeping up with the benefits
  • A reduction in the tax levied on IP claims, applying to existing policyholders
  • Multiple policies or receipt of other non-disclosed sources of income
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8
Q

How can product design attempt to avoid over-insurance

A

MRTC

  • An appropriate MAXIMUM benefit formula at point of sale
  • regular REVIEWS to ensure that the level of benefit remains appropriate
  • TRAINING of those conducting the sale, reducing the incentive to over-insure
  • CLEAR policy conditions highlighting the likely action at claims stage in the event of over-insurance
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9
Q

What are proportionate or rehabilitation benefits

A

IP products may provide a rehabilitation or proportional benefit to those who return to work on a part-time basis or in a less strenuous (and lower paid) role

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10
Q

What is the waiting period

A

It is a specified period following the commencement of the policy during which benefits will not be paid

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11
Q

What is the deferred period

A

The insurer will not usually pay benefits during the first few weeks of sickness. This is known as the deferred period

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12
Q

What are the main reasons that contracts have a non-zero deferred period

A

I CAN

  • to INTEGRATE with employer-supplied benefits
  • to reduce the cost of CLAIMS to the insurer
  • to reduce the insurer’s ADMINISTRATION costs
  • to meet true customers NEEDS; i.e. most customers would not want to submit a claim for a couple of days off with flu
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13
Q

What are the occupational-based definitions of a claim

A
  • Inability to perform own occupation
  • Inability to perform own occupation and any other suited occupation by education, status or training
  • Inability to perform own occupation for an initial period of claim followed by the inability to perform any occupation thereafter
  • Inability to perform any occupation
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14
Q

What are the alternatives to occupational-based definitions to define a claim event in terms of an inability to perform various tests

A

A FAP

  • Activities of daily living (ADLs)
  • Functional assessment tests (FATs)
  • Activities of daily working (ADWs)
  • Personal capability assessment (PCA)
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15
Q

What normal everyday tasks do activities of daily living assess

A

WTF DMT

  • Washing
  • Transferring
  • Feeding
  • Dressing
  • Mobility
  • Toileting
16
Q

What are the different variations of IP products

A
  • Guaranteed and reviewable premium rates
  • Guaranteed insurability options (GIOs)
  • No claims discount
17
Q

What is guaranteed insurability options

A
  • This allows the insured to increase the sum insured at the office standard rates for the then-current age when a particular life event occurs, without supplying further medical evidence
18
Q

What is linked-claims period

A

It is when the deferred period is waived is sickness relapses within say 52 weeks

19
Q

What are the risks to the insurer from IP products

A
  • Claim inception and termination rates, including anti-selection
  • Selective and normal withdrawals
  • Mortality, expenses, and investment
  • Capital requirements will normally be low