Critical Illness Insurance

Question 1

Accelerated critical illness benefit

Answer 1

This benefit is provided when a policy pays the sum insured upon death or diagnosis of a critical illness, whichever occurs first. If the life insured suffers a critical illness, then the sum insured is paid and the policy is terminated. Some policies accelerate a portion of the sum insured in which case the contract stays in force and pays the balance of the sum insured upon subsequent death. Most policies accelerate 100% of the sum insured.

Question 2

Assessment period

Answer 2

The period during which the insurer will assess a condition before making a decision on whether or not to accept a claim under critical illness or total permanent disability cover. The assessment period will not normally be longer than 12 months, as long as all the evidence needed has been provided. Also, the assessment period should only apply to claims for the conditions that must be permanent for cover to apply.

Question 3

Claim notification period

Answer 3

In order to improve claims handling procedures, many companies require that claimants notify them of potential claims at an early stage. The notification requirements of companies generally fall into two broad categories:

• the insured is required to notify the company a set time after the incapacity begins, irrespective of the deferred period
• the insured is required to notify the company at a set time before the end of the deferred period.

The purpose of this period is twofold - to ensure that valid claims are ready to be paid at the end of the deferred period and for the purposes of early intervention from a claims management perspective.

Question 4

Creditor insurance

Answer 4

This is a form of cover that is taken out to protect a loan or mortgage. It may consist solely of life insurance that will repay the outstanding loan if the borrower dies before it is repaid. Often cover is extended to pay off the loan following a total and permanent disability and critical illness. Creditor insurance can also be taken out to cover repayments during temporary disability or unemployment.

Question 5

Critical illness

Answer 5

This is a type of contract that provides benefits on the diagnosis of a “critical illness”, or to the specific illnesses covered under such contracts. The illnesses are defined by the insurer, and may cover conditions such as cancer and heart attack.

Question 6

Deferred period

Answer 6

This term means the period of incapacity before any benefit is paid.

Question 7

Guaranteed premium rates

Answer 7

This describes the situation where the benefit/premium relationship is set from the outset for the duration of the policy.

Question 8

Irreversible

Answer 8

Irreversible conditions are those that cannot be cured by medical treatment and/or surgical procedures at the time of the claim.

Question 9

Reviewable premiums

Answer 9

This is a form of premium offered by critical illness insurance providers. It allows the insurer to alter the premiums if the prospective claims experience for the portfolio as a whole is different from that which was originally expected. Most companies that employ reviewable rates undertake the reviews every 5 years, though experience monitoring is done on a regular basis.

Question 10

Rider benefits

Answer 10

These are extra benefits that can be added to a basic policy either at commencement of the cover or sometimes at defined policy anniversaries of the contract. These benefits would be underwritten at outset and would normally affect premium rates and possibly initial underwriting requirements. For marketing reasons, some riders are provided for the policyholder at no additional charge.

Question 11

Stand-alone critical illness plans

Answer 11

These are policies that only provide cover against critical illness and do not provide any benefit in the event of death. Following payment of the critical illness benefit, the policy terminates. Occasionally such policies may offer a nominal sum in the event of death before a critical illness is suffered.

Question 12

Terminal illness

Answer 12

This is a medical condition that is expected to result in the person’s death within a short period.

Question 13

Waiver of premiums

Answer 13

This refers to the practice whereby the premium for a CI policy is covered in addition to the main benefit provided by the policy in the event of disability.