Chapter 6: Health and care insurance products - Critical Illness

Question 1

Critical illness insurance

Answer 1

• Critical illness insurance is a pure protection product with the sum assured payable if the policyholder suffers one of the insured conditions during the term of the policy.
• Usually, level regular premiums are paid until an insured event occurs, the insured dies or the term of the policy ends, whichever event occurs first.

Question 2

Most critical insurance is provided in one of the following forms: (3)

Answer 2

1. Stand-alone critical illness insurance, where the sum assured is only paid on the diagnosis of an insured condition. No payment is made on death.
2. Rider to a life policy, where the sum assured relating to critical illness is paid on the diagnosis of the critical illness and the sum assured amount relating to the death benefit is paid on the death of the life insured.
3. Accelerated critical illness insurance, where the sum insured is paid on the diagnosis of an insured condition or death, which ever occurs first.

Question 3

Needs met by a Critical Illness policy: (6)

Answer 3

1. income can be provided when the individual cannot work as a result of a CI.
2. the benefit can be used to repay a mortgage or other loan.
3. medical costs can be funded when the CI requires surgery or treatment.
4. business partners can purchase CI policies on the lives of each other such that the benefits will fund the buyout of the stake in the partnership.
5. it can fund a change of lifestyle in order to improve the claimant’s health.
6. other needs suggested include recuperation after illness, taxation planning, medical aids (e.g. the installation of specialist equipment in the home.)

Question 4

The criteria for the inclusion of an illness or conditions are: (3)

Answer 4

1. it is a condition perceived by the public to be serious and to occur frequently.
2. each condition covered can be defined clearly so that there is no ambiguity at time of claim.
3. sufficient data are available to price the benefit.

Question 5

Tiered benefits

Answer 5

• With a tiered benefit product, the payment of benefits is liked to the severity of the disease.
• There may be multiple claims under a policy until the full sum insured has been reached.

Question 6

The needs met by tiered CI benefits are that they: (2)

Answer 6

1. are a closer fit possibly to medical distress and financial needs.
2. may be deemed more comprehensive and more fair.

Question 7

The downside to tiered benefits: (2)

Answer 7

1. a tiered benefits product is more complex than a standard CI contract, making it hard to compare.
2. there is potential for a higher degree of claims dispute.

Question 8

Main risk to the insurer:

Answer 8

• What are serious illnesses, and how they are treated, changes rapidly with medical advances.
• This has made it difficult for insurers to assess the risk they face.

Question 9

The main risks relating to critical illness are:

Answer 9

1. diagnosis rates, including anti-selection
2. selective and normal withdrawals
3. expenses, and to a lesser extent, investment
4. Capital requirements will normally be low

Question 10

Major conditions: (7)

Answer 10

1. Cancer
2. Coronary artery by-pass surgery/graft
3. Heart attack
4. Kidney failure
5. Major organ transplant
6. Multiple sclerosis
7. Stroke