CLK_F102_Chapter_7 Flashcards
1
Q
Definition of LTCI and overview
A
Definition
LTCI is defined as all forms of continuing personal and nursing care and associated domestic services for people who are unable to look after themselves without some degree of support, whether provided in their homes, at a day care centre or in a state sponsored or care home setting
Overview
- LTCI is for people who are not going to get better as it is designed to treat the results of the condition and not the condition itself
- insured’s needs for care may include domestic support eg a nurse or other care giver. This can progress into live in care as claimant becomes more incapacitated
- alternatively nursing homes or continuing care retirement communities (where people join by paying a lump sum usually funded by the sale of their house - they get accommodations and care appropriate needs) can be sort
2
Q
How can the costs of care for LTCI be divided?
A
Living and housing costs
- can be greater than normal due to particular needs eg special foods, a bath hoist
- it is the increase in the cost rather than the total cost that should form part of the benefit provision
Personal care
- all forms of care involving touching a persons body, issues of intimacy, personal dignity and confidentiality
Nursing care
- narrowest form of LTC and can be defined as care that requires the specific knowledge or skills of a qualified nurse
- a more restrictive definition involves the assessment of health care needs and specific interventions that require technical knowledge and competence or disease states which only a registered nurse can provide
- a broader definition might cover the costs of a registered nurse in providing, delegating or supervising care in any setting
- a definition to encompass either state provision or insurer responsibility will depend on the purpose for which nursing care is used
Intermediate care
- focuses on recuperative devices following an acute event eg heart attack, stroke or an accident requiring a period in hospital admissions and minimise dependence on on-going long term care.
- services should incorporate intensive therapy and support
- the care is intermediate between hospital care and care provided in the home
3
Q
Informal vs formal care
A
Informal care
- care is provided by spouse or children
- most informal care is limited to no more than 4 hours per week and provided by a small group
- informal care has indirect cost in terms of either the lost economic activity or the price of replacing the care support should it no longer be provided
- even though informal carers don’t earn wages there will be extra expenses connected to their caring that could be met from LTCI policy with cash benefits.
- in some countries carers are provided with benefits by the State such as allowances or tax relief for payments to carers
- continual supply of informal carers will have a direct impact on formal care costs.
- if the formal care sector shrinks then demand for LTCI may increase
societal factors that could have an impact on availability of informal careers are:
- proportion of women working
- geographic dispersion of families
- changing family structures (divorce, marriage, falling birth rates)
- attitudes of different generations to providing care for the older generation
- cultural and religious conditions
those providing substantial levels of care are themselves over 60. Why?
- for couples, the more able partner often provides care or care is provided by a brother, sister Orr cousin. Ie someone someone of similar age often 60+
- a single surviving parent may be cared for their child and since generations are usually 30 years apart, a 80/90 year old could be cared for by someone in their 60s
- those that are retired usually have more time to provide informal care
Formal care
- can be delivered in many settings including the older person’s own home, homes of near relatives and State or privately owned and managed residential homes
4
Q
What customer needs does LTCI meet?
A
- aims to provide financial protection when a person becomes unable to look after themself, typically in old age.
- concern that they will not have sufficient funds to pay for their care in old age or that State care is not available or insufficient
- at early stages of incapacity some care is provided by family or friends but LTCI is purchased to avoid dependence on unpaid care
- it provides comfort that there will be an independent source of cash when incapacity sets in
- can be purchased by individuals who wish to fund the care of elderly friends or relatives
concerns of the policyholder
- policyholder concerned that the funds the insurer will provide are not enough to provide care at the level deemed appropriate in future since they are cash benefits and don’t meet the actual cost of relevant care
- insurer may be unwilling to indemnify all future outgoings in all products as this can be difficult and may result in premiums if insurer indemnifies benefits
- the perceived need for LTCI is often one of priority and felt after retirement ages, at which point the funding for LTCI becomes so much more expensive
5
Q
Product features of LTCI: Pre-funded products
Product structure
A
stand-alone version sold in many territories
can be added an an optional addition to another policy
LTC benefits can be added to CI policy
- structured st definition of TPD changes from occupation related to or activities of daily work to failure of ADL at age 60
- however common causes of long term care are already covered by main CI policy
long term care benefits can be dared as a rider on a whole of life insurance
- this product pays sum assured on death or accelerates a fixed % of the benefit eg 2% of SA per month when long term care criteria is satisfied
- policy needs large sum assured in death to provide large LTC benefit and so can be very expensive to older lives compared to other LTIC products
LTCI can be added to IP policy so that cover continues beyond normal retirement age
- at end of IP term the definition of disability would switch from being occupation based to activity related eg failure if ADL
what are the problems with adding LTCI to IP policy?
- may be no link between levels of income protection and long term care benefits required as IP benefits depend on level of income and LTC benefits depend on the difference between cost of care weans what insured can pay towards care costs
- IP benefits and LTC benefits do not overlap so the policy with a rider will resemble two policies packaged together rather than an inter grated product. Combined product would not be any less cheaper than purchasing the two products separately
- LTCI has a good overlap with CI because many CI in old age will generate the need for long term care
- LTCI and whole of life have a good overlap as LTC benefits are viewed as accelerated death benefits
- both LTCI and IP have proved to be of no interest to consumers so unlikely that the combination of the two products will generate a large market
6
Q
Product features of LTCI: Pre-funded products
Benefits
A
- benefit payments depend on claims definition
- not dependent on place of residence can be at home or nursing home
- type of benefit can be lump-sum, annuity certain, lifetime benefit subject to ongoing disability, restricted benefit payable for a max period or to max total amount subject to ongoing disability
- escalation rates can be level, fixed or linked to index
- length of payment period can be lifetime or fixed eg 3 years
- max initial benefit is limited to avoid overinsurance and ensure benefits linked to care costs incurred
- single event may depend on a level of disability eg inability to undertake ADL and it’s continuation for a specified period eg a deferred period of 3 to 6 months
purpose of deferred period
- At beginning of illness that requires care the insured may have sufficient funds to pay for their own care or family may be able to provide informal care. Hence no need for LTCI cover.
- period over which insured has no need for cover will differ between individuals so having a choice on deferred period will allow them to choose cover that suits their need
- deferred period allows insured to adjust and select new patterns of living. At the end of deferred period they will hence be in a better position to choose the care they want having had the time to weight their options
other plans have more complex triggers eg needing care in a nursing home or at night. The more complex the definition the less likely the insured event and in general the lower the premium will be
- different benefits are payable dependent on the level of disability. Eg:
- 50% paid if failure 2/6 ADL. 100% if failure of 3 or more out of 6
- 100% payable as a result of mental impairment
- more recent plans have separated the ADL triggers so that the benefit for each level of disability can be individually selected
advantages of this method
- if benefits are available on a sliding scale beginning when there is modest impairment failure of one ADL then care is provided at an early stage. This can slow down deterioration of insureds health, provide better quality of life and reduce overall cost of care during lifetime if insured
- benefits are likely to match the needs of insured and can hence increase sales of product
- may attract more interest from intermediaries if benefit is novel
disadvantages of this method
- increased costs for insurer
- if premiums are waived during claim period then this may increase the cost of premium waiver
- pricing will be more difficult
- design is more complex. More detailed sales literature and effort required by intermediaries to explain the product to client
7
Q
Product features of LTCI: Pre-funded products
Other benefits
A
- plans provide a fixed number of monthly benefits to cover the cost of any assistive devices
- provision of independent care advice at point of claim - has become a prerequisite by salespeople/care manager as claimant are usually not in good health and need help making a decision
- basic regular premium products don’t provide death benefits or surrender benefits
- plans with longer deferred periods, lower escalation rates, no death m/surrender benefits and limited benefit payment periods are less expensive
8
Q
Product features of LTCI: Pre-funded products
Method of funding
A
various methods of funding the insurance premiums
- single premium
- regular premiums - with escalation in line with benefit escalation and premium waiver when claiming
- restricted regular payments which either at retirement or during a defined level of disability
- retrospective payment from equity released after sale of home
9
Q
Product features of LTCI: Pre-funded products
Claim definition
A
- pre funded LTCI products use ADL and cognitive impairment as the claims trigger to measure dependency
- claim triggers require the policyholder to be incapable of performing a number of these ADLs alone
- number of ADLs failed denotes level of dependency
- List of ADLs used:
- washing
- dressing
- feeding
- toileting
- mobility
- transferring
there may be a mental impairment trigger
- this means a need for care or supervision as a result if deterioration in or loss of mental capacity (covers memory, knowing who or where you are, awareness of time and making irrational decisions) from an organic source (Alzheimer’s or irreversible dementia but excludes depression or side effects of other medication)
- mental impairment is overriding meaning benefit is paid out even though insured can perform all ADL
10
Q
Product variations: guaranteed terms
A
- sold due to fact that policyholders who purchase a single premium plan do so to indemnify themselves against all future costs as they may be older with a fixed pension and cannot afford risk of additional premium or reduced benefit
- guarantee may be age dependent ie take effect from 70 - after this age insurer can’t require further premiums or reduce benefits
- at older ages the effectiveness of the review on guaranteed products is limited and hence guarantee is less effective
why is the cost of guaranteeing premiums at older ages less significant?
- only a proportion of policyholders survive to older ages so expected losses from charging a guaranteed premium that is too low will decrease as the age at which guarantee applies increases
- similarly a small increase in premiums at older ages will have a small impact on the total expected premium income for the policy. At older ages many policyholder are receiving a benefit or expecting to receive it so a premium review would generate little additional income for the insurer
- insurers may offer a limited guaranteed premium protection for 5 or 10 years instead of a full guarantee. This form of product is complicated fir the consumer to understand and is just deferring the pint at which premiums will be increased, which negates. Which negates the value of the guarantee
- guaranteed premiums will include a substantial contingency listing making them more expensive that reviewable product
- as a result reviewable premiums dominate for pre-funded LTCI
11
Q
Product variations: indemnity benefits
A
Principle of indemnity
indemnity is protection against loss. So insurer will ensure that they return insured to the state they were in immediately prior to the event happening
- some health insurance products provide indemnity benefits eg medical aid
- amount is often unknown and is often paid to health care provider eg hospital or nursing home
- to control claim costs some of the benefits will be subject to overriding maxima eg cash limit on benefit
advantages of insurer paying care provider
- insurers may be able to get better terms from provider due to size abs experience so may be easier abs cheaper to option care from indemnity policy than from proceeds of a cash based policy
disadvantages of an indemnity product to the insurer
- level of uncertainty in future costs of benefit
- margins for certainty in premiums may result in premiums being too high from insured’s perspective
12
Q
Product variations: cash benefits
A
- LTCI provide cash benefits as either lump sum or an income
- benefit level chosen at time of purchase to provide the expected costs of need in future based on what insured can afford
- different benefit levels are available for different levels of incapacity - menu help estimate potential future expenses, but produce may be complex for non expert purchaser although broker gives advice
- salespeople often promote flexibility of cash benefits to traditional but subject to a maximum
- cash give policyholder choice - used anyhow without being earmarked for a particular purpose
- cash benefits lead to windfall claims so insurer must be strict when assessing claims
- family can exploit cash benefit and leave the elderly person without adequate care
risks for insured
- cash benefits may be inadequate to meet healthcare needs in future
- relatives have no experience in buying care services and knowing how state benefits interact with private benefits. Some insurers have mitigated this risk by providing care management services to provide help and advice for free
- danger that purchaser might think that they are buying care indemnity only to later he disappointed and realise the plan provides cash which is maybe insufficient. Can lead to complains, reputations damage to insurer of mis-selling and lead to insurer paying claims that were originally not intended for the policy
13
Q
Product variations: unit linked version
A
aims
- buying LTCI with no death or surrender there is a risk that insured will never claim
- buying unit linked with larger sun going to investment fund avoids this undesirable feature. How?
- if policyholder dies before claiming from LTC benefits then trust beneficiaries can inherit proceeds of trust
- insured has contingent claim on trust fund if they need LTC which allows part or all unit fund to be paid towards LTC costs
risk charges
- unit fund will receive a single premium and threader be subject to monthly LTC risk premium charges
guarantees offered
- as policyholder gets older and risk charges increase there is a risk that if the unit fund is not big enough (if risk charges cannot be deducted) then insurance premiums will not be paid.
- so if no guarantees have been offered, cover will lapse unless more money can be put into the unit fund by insured
- plans can offer different guarantees before the insurance claim is triggered:
- no guarantee that single premium would be sufficient to provide lifetime LTC protection
- protection from a fixed age, often 90. This means provided unit fund is positive at 90, no further risk premiums be deducted from it to cover LTC benefits
- a full guarantee so that insurer accepts the risk of fund deletion. In this case investment choice is restricted to a managed or with profits fund
14
Q
Product variations: unit linked version
Continued
A
insurance claim triggers
- prior to LTC benefit being paid insured would draw from they unit fund. This would stop at point at which selected insurance protection commences
there is often choice of LTC insurance claims that afford different levels of fund protection in the claim period
- protecting the entire investment (both initial investment from single premium and the investment growth)
- if entire fund is protected then all benefits will be paid from non unit fund and unit fund will be returned to insured as lump sum. This will apply if product was sold as investment product with LTC benefits
- protecting initial investment but investment growth can be used to pay for LTC benefits
- allowing entire fund to be exhausted. This would apply to contracts being used for protection
several periods to be aware of
- deferred period that policyholder chooses at outset (this period is fixed)
- period if any, during which long term benefits are paid from the unit fund - period will depend on size of the unit fund at time of claiming and level of benefit
- period during which LTC benefits are paid from non-unit fund (this will be initial death or recovery because we first deplete unit fund)
so from insurer’s perspective, choice of fund protection = varying the deferred period
- where entire fund is protected a minimum deferred period will apply, normally three months, after which the insured benefit would begin and no further withdrawals will be made from the unit find
- where you allow the unit fund to be exhausted the maximum deferred period would apply.
- where part of the unit fund is protected the deferred period would vary according to the difference between the fund value at time of claim and the fund protection selected.
complexity of product will act as a barrier to sales. Most consumers will need advice if the product is to meet their needs. This will add to sales costs.
15
Q
Immediate needs solutions
A
- provide protection to individuals from uncertain survival duration and thereby provide certainty on their capital costs
basically an impaired life annuity purchased by a single premium
- premium calculated on health status of the applicant
- benefit amount can increase with worsening incapacity
- some plans immunise policyholder from future care costs escalation by making pre-arrangement benefit escalation rates with a specified list of nursing homes
- benefits are still cash and not indemnity
- benefit amount can be level or escalate at a fixed rate or linked to an index
- costs over time rise in line with average earnings as people provide care services and not machines, so majority of care costs are from wages
- policyholder can select death benefit structures as follows (a minimum payment period, amortising the single premium, providing protection of part of the single premium ie part of part of premium will be returned on death)
