Product Design of CI in Canada

Question 1

Types of critical illness policies (2)

Answer 1

1. Standalone - offers coverage only for critical illness: basic and enhanced
2. Acceleration - combines coverage for both critical illness and death. Pays the face amount on the earlier to occur of critical illness or death.

Question 2

Definition of Critical Illness insurance (3)

Answer 2

CI is an insurance product that pays the face amount when:

1. Insured is diagnosed with condition covered in the policy. Diagnosis must be made by a doctor and must be supported by objective evidence.
2. Condition meets the definition in the policy and not excluded by an other policy provision
3. Insured survives for specified period (usually 30 days) following diagnosis

Question 3

Conditions covered by Basic CI policy (4)

Answer 3

1. Life-threatening cancer
2. Heart attack - may exclude mild hear attacks
3. Stroke - requires measurable neurological deficit that persists for 30 consecutive days
4. Coronary artery bypass graft

Question 4

Conditions covered by Enhanced CI policy (9)

Answer 4

1. Multiple sclerosis
2. Kidney failure requiring dialysis
3. Major organ transplants
4. Cardiovascular - hear valve replacement and aortic surgery
5. Degenerative: motor neuron disease, Parkinson, Alzheimer
6. Brain: comma, benign brain tumor
7. Head - blind, deaf, loss of speech
8. Body - loss of limbs, paralysis, major burns, occupational HIV
9. Loss of independece

Question 5

Optional product features on CI policies (7)

Answer 5

1. RoP on death
2. RoP on expiry - returns premiums on policy’s expiration date if policy is still in force
3. RoP on surrender - returns defined % of prem upon surrender
4. Face amount increasing (inflation) or decreasing (declining principal remaining on a mortgage loan)
5. Partial benefits payable for some non-life threatening condition
6. Assistance benefit
7. Guarantee that premium not change

Question 6

Consideration in product design for CI insurance (5)

Answer 6

1. CI is relatively new product with immature experience data
2. Limit benefits for conditions that are not life threatening
3. Avoid anti selection at issue
4. High claim cost for some conditions after age 75 (i.e. Alzheimers)
5. high claim cost of long term guarantees due to earlier detection of conditions

Question 7

Guarantees for CI policies (4)

Answer 7

These can’t be changed by the insurer:

1. Conditions covered are guaranteed
2. Definitions of conditions are guaranteed
3. Premiums are guaranteed
4. Policyholder can continue policy in force until expiration date in all cases

Question 8

Acceleration CI Policy (2)

Answer 8

1. Full acceleration policy - benefit equal to face amt is paid earlier of CI or death
2. Partial acceleration policy - % of face amount provided for CI and remaining face amount provides death protection for lower premium

Question 9

Difference between Standalone CI and Acceleration CI (3)

Answer 9

1. No 30 day survival for Acceleration CI as benefit is payable on death and CI
2. Higher premium for Acceleration CI as death benefit is included.
3. Premium is lower for Acceleration CI to separate standalone policies as one benefit is paid under acceleartion

Question 10

Consideration in selecting CI product (7)

Answer 10

1. Policy definitions for cancer, heart attack, stroke, CABG, and MS - these conditions have highest incidence rates and greatest definition variations
2. Variation in partial benefits for conditions that are not life threatening
3. Price
4. Financial condition of carrier
5. UW requirement and service
6. Claim practice
7. Whether RoP on expeiry and RoP on surrender benefits are included