Chapter 6 : Critical Illness

Question 1

What is CI?

Answer 1

Pure protection product with the sum assured being payable if the policyholder suffers one of the insured conditions during the term of the policy

Question 2

What is the criteria for the inclusion of an illness under CI?

Answer 2

1. Must be perceived as serious by the public
2. Must have clear criteria or definition of conditions
3. Sufficient data must be available to price the benefit

Question 3

What are the 3 forms of CI?

Answer 3

1. Stand alone benefit-pays on disability not on death
2. Rider on a life insurance policy- pays on illness and then on death
3. Accelerated CI- pays on whichever comes first (death or illness)

Question 4

What needs does a CI policy meet?

Answer 4

1. Income when an individual cannot work due to CI
2. Pay off any mortgage or loan
3. Medical costs: surgery or treatment
4. Business partners
5. Fund a change in lifestyle due to CI

Question 5

What main illnesses are covered by CI?

Answer 5

1. Stroke
2. Cancer
3. Heart Disease
4. Artery bypass surgery

Question 6

What is a tiered benefit?

Answer 6

With a tiered benefit product, the payment of benefits is linked to the severity of the disease.

Question 7

Risks to the insurer (CI)

Answer 7

What serious illnesses are, how they are treated and changes in medical advancements make it difficult for insurers to assess the risks that they face

Question 8

What are the main risk related to critical illness?

Answer 8

1. Diagnosis rate including anti-selection
2. Selective and normal withdrawwals
3. Expenses
4. Capital requirement are low
5. Scarce data (large margins, reinsurer needed)

Question 9

What are some pros and cons of tiered CI benefits

Answer 9

Needs meet by CI:
1. Closer fit to medical distress and financial needs
2. More comprehensive and more fair

Cons:
1. This product is more complex than a standard CI, making it hard to compare and also to price
2. Higher degree of claims dispute