Chapter 6: Critical Illness

Question 1

Keyman cover

Answer 1

CI policies taken out to cover the life of business partners to buy each other out in event of critical illness.

Question 2

3 conditions that make an illness/event it appropriate to be covered by CI:

Answer 2

1. Perceived by public to be serious and occur frequently
2. Can be defined clearly – no ambiguity at time of claim
3. Sufficient data available to price

Question 3

Insured lives may differ from uninsured Ito: (3)

Answer 3

• Better health
• Higher income
• Better education

Question 4

A few major conditions commonly covered by CI:

Answer 4

• Cancer
• Coronary artery by-pass surgery
• Heart attack
• Kidney failure
• Major organ transplant
• Multiple sclerosis
• Stroke

Question 5

Terminal illness

Answer 5

Does not relate to a specific illness but rather based on:

• Severity of a condition
• Effect it has in life expectancy

Usually covered by CI

Question 6

Tiered benefit CI

Answer 6

• Payments are linked to severity of illness.
• Proportion of sum assured is paid out dependant on extent or progress of illness
• Further payments can be made if the disease advances

Question 7

5 Reasons for offering tiered CI beenfits:

Answer 7

• CI becomes more comprehensive
• Benefits more closely match the need
• Differentiate from competitors
• Multiple claims are possible
• May make comparisons more difficult

Question 8

Guaranteed insurability on CI (2)

Answer 8

• increase sum assured at certain time s
• Increase sum assured in response to a life event (birth or child, new job)

Without further medical UW

Question 9

Advantages of ADL vs occupation based definitions (4)

Answer 9

• Can be applied to wider range of lives
• Can be applied beyond retirement
• Simplicity
• Less subjective

Question 10

Main risk to insurer

Answer 10

Rate of diagnosis.

Not a lot of data available to estimate - parameter error

Question 11

Medical advances may be beneficial and detrimental to insurer

Answer 11

Benefit:
Early detection could lead to intervention which leads to less claims

Detriments:
Prolonged life expectancies would lead to more claims
Improved screening may lead to more diagnosis and thus claims

Question 12

Problems with tiered benefits (3)

Answer 12

• Difficult to design benefit levels and claims trigger at each level
• Difficult to price due to more transition intensities to estimate
• More UW needed and potentially more disputes

Question 13

Premiums on CI cease when: (5)

Answer 13

• Die
• End of term
• Lapse
• Paid-up
• Claim

Question 14

Accelerated CI benefits principle

Answer 14

Once you claim for CI, your death benefit reduces by the CI SA paid out