Chapter 7 Long-term care Insurance Flashcards
Describe a long term care insurance contract
A long term care insurance contract may provide a cash benefit or indemnify the insured for the cost of long term care
Customer needs met:
+Finance provision of care/assistance (in old age)
+Financial protection (when a person becomes unable to look after self)
+Protect from insufficient funds/inadequate state care
+Avoid dependence
+Provide comfort (for insured, for insured’s relatives/family)
+Generally doesn’t indemnify
Uncertainty associated with state provided cover
+Inflation protection of care costs (if indemnity)
+Advice on care
Group versions don’t typically exist
What is long term care?
All forms of continuing
+personal care or
+nursing care and associated domestic services…
…for people who are unable to look after themselves without some degree of support,
whether provided in
+their own homes,
+at a day centre,
+or in a state sponsored or care home setting.
Describe the optimal outcomes of long term care
Long term care aims to treat the result of the condition, not the condition itself.
Ideally we want
+help individual regain independence
+slow down deterioration
+provide necessary care support and environment
Medical care also important aspect of long term care, where physical/mental breakdown requires doctors/nursing staff. Usually expensive!
Describe the 3 types of costs associated with long term care
living:
+food, clothing, hearing, amenities
+may require special arrangements, and increased cost impact
housing: rent, mortgage payments, council tax)
personal care:
+added costs of being looked after/having body touched (intimacy/personal dignity/confidentiality issues)
+nursing care: needs knowledge/skills of qualified nurse
+intermediary care: focusing on recuperative services acute event (e.g. heart-attack) to reduce hospital admission/minimise dependence on ongoing care
Briefly describe the 2 main ways in which long term care may be provided, in terms of who the providers of care services are, and the qualification of providers
Formal care
Care which is provided via a professional services either in
+Own home
+Homes near relatives
+Managed residential homes
Informal care
Care typically provided by spouses/family/relatives, not provided via professional services, usually limited to not more than 4 hours per week.
Often carries indirect cost (lost economic activity)
Influenced by
+Cultural/religious practices
+Attitude towards caring for older generation
+Geographic family dispersion
+Family structure changes (divorces, re-marriage, lower birth rates)
+Proportion of working women
What are the 2 main types of long term care contracts?
Pre-funded long term care contracts
+purchased by relatively healthy people to protect them against risk of future disability/morbidity
+something else worth noting: because these contracts provide for future disability, a claims trigger will need to be met to pay benefit. This is not the case for immediate needs long term care contracts
Immediate needs long term care contracts
Purchased by people already in a state of needing long term care, needing to protect against uncertain survival duration
Pre-funded long term care contracts: discuss the following:
Structure, in terms of the ‘policy being sold by itself’ vs ‘the policy in addition to other policies’ (5)
Funding/financing for the care required by the policyholder…ie premiums payable (4)
Structure may either be:
+Standalone: this is the case most of the time
Rider: added to
+CI: TPD definition changes at age 60 to ‘loss of independent existence’’
+Whole of life: fixed % of benefit accelerated when LTC claim def satisfied
+IP: cover annuities beyond NRA, defs changes from occupation based to activity based
Funding:
+Single premium
+Regular premiums: usually increase with chosen benefit increase rate
Restricted regular premiums:
+up to certain age (NRA?)
+non during specified level of disability e.g. waiver of premium
+Retrospective payment: equity release after sale of home
Pre-funded long term care contracts:
Discuss claims definitions
Claims trigger requirements (3)
Claims trigger requires
+insured incapable perform certain number of activities
+without endangering health/well-being of themselves or others
+usually failure of insured to undertake certain # of ADLs unaided
Examples of ADLs (activities of daily living)
Physical incapacity
+feeding, washing, dressing, toileting
+mobility: able to move indoors, room to room, level surface at normal residence
+transfer: able to move from lying position to sitting position in upright chair/wheel chair
Mental incapacity:
\+deterioration/loss of mental capacity from organic cause=> need for care/supervision organic cause (Alzheimer's, irreversible dementia)
+NOT depression/side effects from other medication
Covers \+memory \+knowing who/where they are \+awareness of time \+ability to solve simple problems \+make rational decisions
Pre-funded long term care contracts:
Discuss the benefits provided in terms of 2 key factors for claim definitions (3)
Two key factors
Payment depends on claim definition
+single event (depend on level of disability, continuation for a specified period), or multiple set of events
+complex triggers also possible (e.g. need to be disabled and require care during night)
more stringent definition results in cheaper premiums
Pre-funded long term care contracts:
Discuss the benefits provided in terms of
What benefit depends on (2), and the advantages (4) and disadvantages (3)
Benefit depends on
+Level of disability e.g. 50% fail on 2 ADLs and 100% fail on 3+ ADLs
+May depend on residence: own vs nursing; not important if indemnify
Advantages
+Care provided at early age if there’s modest impairment
+Better match customer needs
+Perceived better value
+Novel feature may attract intermediaries
Disadvantages
+Increased admin costs
+Pricing more difficult
+Design more complex=> detailed literature, more effort to sell
Pre funded long term care contracts:
Discuss the benefits provided in terms of
Form of benefits (4)
Other benefit forms (2)
What happens on early death (1)
Surrender value and paid up value (2)
Benefit forms
+Lump sum
+Annuity certain
+Lifetime benefit (subject to ongoing disability)
+Restricted benefit (maximum period, or maximum total)
Other benefit forms/topics
+Assertive devices: norm limited to 3 or 6x main monthly benefit
+Independent care advice: at claim, help insured understand choices available and right to state suppose
Return premiums on early death (single premium unlikely for reg premium)
No surrender benefit
Paid up benefit
Immediate needs long term care contracts: discuss the following
Form (2)
Premium and how it’s determined (2)
Benefit level (2)
Death benefit payable (4)
Structure (6)
Usually some form of impaired life annuity
+Secured by single premium at start of contract…
+…when insured needs care as result of failing ill health
Premium
+Calculated individually, based on health status at purchase
+Premium guarantees not relevant (for single premium policies)
Benefit level
+May increase with pre agree benefit increase rates, with specified nursing home list
+May increase with worsening incapacity
Death benefit may be payable
+gives capital protection of part of single premium
+higher death benefit => less impact of health status on premium
+may be subject to minimum payment period
+usually just amortise single premium
Structure:
+could be: pure endowment, purchased life annuities, disability covers
structure should consider
+tax position ( of policyholder and life office)
+regulatory capital required
+benefit flexibility
Variations for long term care insurance contracts:
What kind of variations may be found in terms of the level of benefits paid (4)
What are the advantages of having these variations (1)
What are the disadvantages of having these variations(2)
Types of variations
+Guaranteed terms
+Indemnity benefits
+Cash benefits
+Unit-linked
Advantages
increase level of customer demand (extended range of benefits/enhanced quality)
Disadvantages
+May lead to confusion about product suitability
+May be costly for insurers/re-insurers
Variations for long term care insurance contracts: guaranteed terms
What important need does the provision of guaranteed terms meet/recognise? (2)
What impact does provision of guarantees have on pricing of LTC contracts? (2)
What issues arise through the provision of guaranteed terms: for insurer (1) and for policyholder (1)
What ‘tweaks’ may the insurer make to the guaranteed terms offered to help manage the risk? (2)
Recognises:
+policyholders’ intended need for indemnity against all future costs
+can’t take additional risks associated with additional premium/reduced benefit
+May include substantial contingency loading
+leading to far lower reviewed premiums than guaranteed premiums..
+…may be attractive to policyholders
Issues of offering guaranteed terms
+True costs could be extensive
+Uncertainty in pricing basis + additional regulatory capital needed due to guarantee
+Favourable experience may not be passed to customer
To help manage the risks introduced, guaranteed terms may be
+age dependent: insurer not seeking further premiums/benefit reductions past given age
+limited: protection for 5 or 10 years
Variations for long term care insurance contracts:
Indemnity benefits (1)
What are the characteristics of the benefit paid when indemnity cover is given(4)
What important implication does provision of indemnity benefits have on cost? (1)
What is the common industry practice in terms of provision of indemnity benefits? (1)
Indemnify insured=> pay for full cost of treatment/care received by policyholder
Benefit
+may be unknown
+may be paid directly to provider=> extract better provider terms with bargaining power
+subject to policy conditions e..g deferred period, restriction on provider
+may be subject to overriding maximums, so not full indemnity
Uncertainty of future costs=> high margins => prohibitively expensive
Few insurers give true indemnity; simply too much uncertainty
