M_F102_Health and care products 2

Question 1

Healthcare products

Answer 1

Income Protection
Critical Illness
Long Term Care

Question 2

Income Protection

Answer 2

Long term product that provides a benefit, usually in the form of monthly payments, during periods of incapacity, usually when the insured is unable to earn an income due to such incapacity.

Question 3

Income Protection Customer needs addressed

Answer 3

• replaces income when unable to work, premiums paid regularly e.g. monthly
• benefit stream matches loan servicing costs- payments for other insurance
• Locum Protection for small practices
• Often provided by employer

Question 4

IP Product features

Answer 4

• complex product due to policy conditions (procedure under different scenarios e.g. lapse, claim, recovery, death, etc.).
• Should still be incentivised to return to work (e.g. replacement ratio <100%).
• Risk of overinsurance (tax change, salary drops but benefit unchanged), should be measures to reduce this (regular review, benefit definition, train sales staff, clear policy conditions, at claims stage)
• benefits can escalate (e.g. to keep up with inflation) or remain level, may vary in and out of claim
• partial benefit if part-time return to work, may also have rehab benefit- deferred periods, may be waived if readmitted for ‘linked’ condition
• expiry age (e.g. normal retirement age)- claim definitions, difficult to assess ‘occupational disability’ also ADLs and ADWs

May need to notify insurer if occupation changes, but this is less popular now.- May not be covered if travel to certain locations

• Premiums may be guaranteed or reviewable
• Guaranteed insurability options (e.g. increase cover on marriage)- no claim discounts may (rarely) feature

Question 5

IP With-profits and unit-linked design

Answer 5

usually written on a without-profit basis, but some product designs may have bonuses being declared that build up to a benefit payable on death or expiry, with IP claims unaffected by the bonus.

Question 6

Group Income Protection

Answer 6

• purchased by employers to cover their employees- benefit level usually linked to salary (e.g. 75% of salary)
• may be lumped in a group policy that provides other benefits (e.g. pension contributions and group life cover).
• continuation option to continue cover, without evidence of good health, if employee leaves

Question 7

IP Risks to the insurer

Answer 7

• uncertainty wrt inception and termination rates- contract definitions of disability unclear
• inadequate data for pricing and reserving
• anti-selection especially for individual life, possible selective withdrawals
• lesser risks with mortality, expenses and investment (more for CIP)- risk of withdrawals when asset share is negative

Question 8

IP Capital requirements

Answer 8

depends on relationship between pricing and reserving basis, likely to be less severe than for other products.

Question 9

Critical Illness

Answer 9

Benefit is paid out, typically as a lump sum, if the policyholder suffers one of the defined conditions.

Does not aim to indemnify the policyholder from a particular loss as IP or medical insurance would.

Question 10

CI Customer needs addressed

Answer 10

• lump sum may provide an income if unable to work- repay mortgage loan or other loan

Question 11

CI Customer needs addressed

Answer 11

Lump sum adds some simplicity to the design, but may be complicated by benefit payment criteria

Question 12

CI Customer needs addressed

Answer 12

• fund a change in lifestyle e.g. move to a lower paying job- recuperation costs after illness, e.g. Installation of specialist equipment at the insured’s home

Question 13

CI Customer needs addressed

Answer 13

• can cover medical costs e.g. if surgery is required due to the critical illness- business partners may use this to buy out a partner if he/she is diagnosed with a critical illness