Chapter 8 - Morbidity Risks Flashcards
Mortality
The number of deaths that occur at a given time, in a given group, or from a given cause.
Morbidity
The prevalence of disease or disability within a population
Mortality risk
The risk of a particular individual dying, at any given time, when compared to other individuals of the same age and sex.
Morbidity Risk
The risk of a particular individual contracting a disease, or other disabling condition, at any given time, when compared to other individuals of the same age or sex. For example, individuals with a long history of back problems have a higher morbidity risk because they are more likely to be disabled due to back problems than other individuals of the same age, sex, and occupation, who have never had back problems.
Disability Insurance
42% probability that a person who is 25 yrs old today will become disabled for at least 90 days before reaching age 65.
At age 55 there is a greater than 1/5 probability of suffering a disability.
For disabilities lasting 90 days are usually handled by their financial affairs.
Average length of disability at 25 is 2.5 yrs, at 55 it reaches 5 yrs.
Insurance usually converse as short as 12 months or can extended beyond age 65.
Disability Insurance - Products - Base policy
When total disability occurs, a benefit is payable (i.e., the monthly benefit) after a definer period of time (i.e., the waiting period), for a defined length of time (i.e., the benefit period).
Disability Insurance - Three types of renewability provisions
- Conditionally renewable (non-traditional)
- Guaranteed renewable (traditional)
- Non-cancelable (traditional)
Disability Insurance - Conditionally Renewable
“Cancelable” - allow the insurance company the most flexibility in making changes to in force policies. This policy type does not provide for any premium or policy provision guarantees nor for the continuation of the policy (can be cancelled or premium increased).
Usually for those looking for cheap coverage or who do not qualify for tradition disability insurance.
Disability Insurance - Guaranteed Renewable
Cannot be cancelled, have any changes made to its provisions or additional restrictions applied, provide the premium is paid to date. Though a lower premium can be charged initially it could be increased by class if the company is experiencing a poor claims history on that particular block of business. Underwriting is less restrictive than non-cancelable. Can include benefit limitations like conditionally renewable such as limited benefit period, longer elimination period, or reduced benefit amount. Some impairments can be completely excluded.
Disability Insurance - Non-cancelable
Most strictly underwritten as it presents the greatest risk to the company. The company cannot:
1. Increase or add additional charges for the policy w/out agreement from policyholder
2. Change/add any provision or restrictions
3. Cancel the policy, regardless of changes (occupation or health).
Usually an age limit to 65.
Coverage can continue past age 65 as long as working full time.
Disability Insurance - Non-cancelable after age 65
Changes include:
1. premiums are no longer guaranteed and are based on attained age on an annually renewable basis.
2. The waiting period remains unchanged but the benefit period is changed to either 12-24 months.
3. The definition of disability it “total”
4. Any benefit riders are terminated.
Max age could be 70 to 75 depending on company.
Disability insurance policies define the conditions that must be met in order for a benefit to be payable. Three categories are
- Own occupation
- Regular occupation
- Any occupation
Own occupation
Provides disability coverage for the individual who cannot perform their specific job function. The inability, due to injury or sickness, to perform the important duties of his/her current occupation. Although disabled from his occupation, He can work in another job while still receiving claim benefits.
Many no longer offer this coverage, and if they do, this is restricted to certain occupations.
Sometimes this is only for a limited period of time.
Regular Occupation
Almost identical to own occupation except the insured is ineligible for disability benefits , if able to work in an occupation for which he/she has been educated, trained, or has experience with respect to the duties required under that specific job.
Regular occupation period would last for the first 2.,5.or 10 yrs of the benefit period - changing to any occupation after.
Any Occupation
Based on the insured’s ability to work in any reasonable occupation. Adjudicator will determine the individual’s ability to work.
Loss of income policies (Residual)
Some disability policies measure total disability in term of income loss. The amount paid is based on proportionate loss of income rate than the loss of ability to perform duties. If the insured is unable to return to gainful employment due to disability. the full benefit of the policy will be paid.
Disability Insurance - Policy Structure
Benefit Payment
Waiting Period
Benefit Period
Contractual exclusion riders
Policy Structure - Benefit Payment
Normally payable on a monthly basis for the duration of the disability and, upon recovery and continued premium payments, the policy remains in force.
Policy Structure - Waiting Period
Also known as the elimination period, designates the period of time one must be disabled prior to benefits becoming payable. Usually around 30 days but can range from 0 days to 2 years.
Policy Structure - Benefit Period
Refers to max period for which benefits will be paid during a disability. Usually around 2 years, 5 years, and up to age 65.
Policy Structure - Contractual Exclusion Riders
Various exclusion riders provide that benefits will not be payable if a disability occurred secondary to:
- an act or accident of war, declared or undeclared, or due to any type of military conflict.
- committing or attempting to commit a felony, or engaging in an illegal occupation.
- normal pregnancy or childbirth
- transplant surgery where a part of the insured body is transplanted to another person during the first 6 months the policy is in force.
- Cosmetic surgery, during the first 6 months the policy is in force.
Business DI Products
- Key Person Insurance
- Office Overhead Expense
- Disability Buy-Sell
DI - Key Person Insurance
Designed to protect a business and replace lost profits in the event of the loss of a key employee (someone who is considered a valuable asset to the company and a necessity for its successful operation.
Regular or Own Occupation definitions of total disability are typically utilized.
Waiting periods are 30, 60, or 90 days
Benefit period is typically 12, 18, or 24 months.
DI - Office Overhead Expense
Reimburse covered fixed business expenses during the disability of the insured owner. Benefit payable is based on the actual covered expenses incurred by the business during each month of disability.
Typical definition is Own or Regular Occupation
Waiting periods are 30, 60, or 90 days
Benefit period is typically 12, 15, 18, or 24 months.
DI - Office Overhead Expense - Covered expenses
- Rent
- Property tax
- Utilities
- Depreciation
- Leased and rented equipment
- Business liability insurance
- Dues for professional association
- Interest on debt
- Accounting fees
- Certain employee wages
- Other fixed expenses customary in the operation of the business.
DI - Disability Buy-Sell
Designed to help fund a buy-sell agreement - which details the procedures to be followed if one of the partners or shareholders suffers from a long-term disability.
Total disability definition is usually Regular or Own Occupation
Waiting period of 12 or 24 months
Benefit period of 60 months
DI - Disability Buy-Sell - Forms of benefit payment
- lump sum that pays the benefit out all at once
- months benefit payment
- combination of a lump sum and a monthly benefit
Underwriting DI
- Medical
- Avocation
- Occupation
- Financial
Underwriting DI - Medical
More restrictive than life underwriting. There are many medical impairments that increase the change of disability without affecting mortality risk (i.e., back, vision, mental/nervous, arthritis, etc).
APS and specialist reports are of great importance.
Underwriting DI - Avocation
Increasing popularity of extreme sports means that the underwriter must be especially careful to request all of the relevant information in order to asses the disability risk accurately.
Due to the increased risk of a disabling injury these g/l are typically more conservative than those for other insurance products.
Underwriting DI - Occupation
Important factor in determining:
- Whether the client is eligible for disability insurance
- The type of product available
- The amount of coverage
- The rates to be charged.
Underwriting DI - Occupation - Example of Class system.
Class 5 represents the least occupational risk and Class 1 the greatest
Class 5 - High level of education and/or training. Includes most professional and white-collar executives (actuaries, engineers, lawyers, accountants)
Class 4 - White-collar office workers (sales managers, lab tech)
Class 3 - Non-hazardous occupations, not working full-time at a desk, spending time outside of an office environment to perform their duties (Plant managers, newspaper reports, insurance adjusters)
Class 2 - Skilled or semi-skilled light manual work for established business in non-hazardous industries (tradesman, mechanics, electricians, plumbers, chefs, nurses assistant).
Class 1 - Moderate to heavy physical work, unusual hazards, skilled or unskilled workers with light duties in stable companies and industries, (i.e, drywallers, caretakers, transport drivers, ambulance drivers, heavy equipment, and factor workers)
Underwriting DI - Occupation - Class system, ways to get bumped up a class
Income level
Years of experience
Number of employees supervised.
Detailed insight into duties of an occupation are fundamental, information can include
- Type of industry
- Area of department where the individual works
- Material handled
- Processes engaged in
- Amount of time travelling
- Number of people supervised
- % of time spend in each duty (with particular attention to physical duties)
- Machines, vehicle and tools used.
Underwriting DI - Occupation - Unstable employment history requires full details on
Prior employment Duties performed Length of time spent at each job Reasons for leaving **those unhappy working may choice to claim though MSK or nervous/mental
Underwriting DI - Financial
Insurable income is earned income that would cease during disability.
Insurers establish earned income limits that identify max benefits for various income levels. The goal is to replace about 75-80% of after tax income for lower income individuals, reducing the percentage to 35-50% for individuals in high tax brackets. The rising tax rate and probable rise in unearned income are only 2 of the many factors that influence a decreasing income replacement ratio as income rises.
Underwriting DI - Financial - Unearned income
Income that would continue if the insured became disabled. These include investments (stocks and bonds), trusts, dividends, interest, rentals, pensions, alimony, capital gain, and royalties.
Recognized as self-insurance.
This will be taken into account when determining an appropriate amount of disability coverage.
Most companies also include principal residence, assets for personal use, and total net worth of up to $5M before monthly benefit amount/benefit period reduction would be required.
Counter Offers - if it is determine that there is an increased morbidity risk for either medical or non-medical reason, a number of options are available including:
- Premium rating (usually %)
- Change of policy type (change from non-cancellable to cancelable or accident-only policy)
- Benefit adjustment - increasing waiting period, decreasing benefit period, decreasing benefit amount, or deleting benefit riders
- Exclusions - not paid on disabilities stemming from a specific medical condition or avocation.
In Canada - Contra proferentum
If the language in an exclusion rider can have more than 1 meaning or is unclear - this principle applied and the ambiguity will be resolved in favor of the insured.
In the US - the interpretation of insurance contracts is based on the principle of reasonable expectations.
Long Term Care
Provides payment for ongoing care of an individual who is unable to live independently, typically manifested by the inability to perform two or more activities of daily living, and/or the presence of cognitive impairment.
Products
Base policy Facility Care Benefit Home Care Benefit Policy Structure Combination Plans Contractual Exclusion Riders
Long Term Care - Base Policy
Most LTC are guaranteed renewable - meaning that once the policy is in force, the insurance company cannot make any adjustments to the policy other than to the premium. If a change in premium is necessary, the change must occur for all policies issued within the same class, which is defined as a series, age or region.
LTC - Facility Care Benefit
Benefits are payable if the insured is confided in a LTC facility and receiving care based upon the loss of 2 or more ADLs/cognitive impairment.
The facility must be approved by the insurance company and be in the country.
LTC - Home Care Benefit
Benefits are payable if the insured is receiving home care based on the loss of 2 or more ADLs/cognitive impairment.
Home care is defined as a program of services provided in the insured’s home by skilled caregivers. Some contracts allow for care by a family member.
LTC - Policy Structure
Benefit payment is based on a daily, weekly, or monthly fixed amount. In the event of claim, payments are made in 1 of 3 ways:
- Indemnity method - set dollar amount, not based on the specific services received or the expenses incurred.
- Expense incurred method - paid if the insured is eligible for benefit and if the claim is for eligible services. Coverage pays the lesser of the expense incurred or the dollar limit of the policy.
* * most common method** - Disability method - once the insured meets the benefit eligibility criteria, the full daily benefit is paid even if the insured is not receiving any LTC services.
- waiting periods are usually 0-180 days.
- benefit period usually range from 1 year to lifetime, w/ some offer a variety of choices in between.
