Study nine

Question 1

What categories does health insurance fall into?

Answer 1

1) disability income benefits
- which cover lost income and certain business expenses arising from, or continue during, an insureds disability

2) medical expense benefits
- reimburse the cost of eligible products and services not covered by prov. gov. health care plans

3) lump sum benefits
- payable if an insured suffers accidental death or dismemberment, or is diagnosed with a critical illness

Question 2

What is required information on Part 1 of the health insurance application?

Answer 2

1) name and address of applicant
2) relationship to proposed life insured
3) details of employment
- hours worked
4) unemployment in past 3 years
5) details of self employment
6) anticipated job change

This info helps an underwriter to quantify the disability income exposure presented by the risk.

Question 3

What questions are contained in Part 2 of the health insurance application?

Answer 3

1) cause of death of parents/siblings
- including age of death

2) details of pregnancies
- complications/c section

3) elevated cholesterol/triglyceride levels
4) amputation, or loss of hearing/sight
5) allergies
6) back pains

7) depression, anxiety, fatigue, chronic fatigue, stress, burn out
- or other emotional, behavioural, mental or nervous disorders

Question 4

What does a conditional insurance agreement have in terms of common additions or modifications?

Answer 4

• is temporary health care coverage
  1) within previous 2 years, insured may not have been diagnosed with/treated for back pain, neck pain, stress, anxiety, depression or other mental condition
  2) the PLI cannot be under medical treatment or taking any prescribed medication
  3) the amt of disability income coverage available is lesser of the amt applied for in app, or amt insurer approves
  4) amt of accidental death coverage available is lesser of the amt applied for in app, or $50,000

Question 5

What elements are included in the basic health insurance policy?

Answer 5

1) identification of policy owner and life insured
2) face value of policy/means to calculate it and circumstances under which it becomes payable
3) the premium/means to calculate it, and grace period for which it may remain unpaid
4) the conditions for reinstatement should policy lapse
5) term of insurance, or means to determine when coverage begins and ends
6) specific stat conditions required based on coverage provided

Question 6

What elements must all health insurance policies contain?

from provincial insurance act

Answer 6

1) insuring agreement
- confirming insurer’s intent to provide coverage

2) schedule

3) definitions
- include total disability, regular occupation, sickness, injury, waiting period

4) general provisions

5) exclusions
6) stat conditions

Question 7

What information does the schedule/face page include?

Answer 7

a) name of insurer
b) name of life insured
c) policy #
d) coverage effective date
e) renewal date
f) insured’s smoking status
g) total premium
h) benefits purchased

Question 8

What is included within the general provisions section of the policy?

Answer 8

1) currency provision
- specifies that premiums and benefits are to be paid in canadian $

2) assignment provision
- states that no assignment, or legal transfer, of the policy is binding on the insurer unless it receives written notice of the assignment

3) renewal provision
- describes circumstances under which the insurer may refuse to renew or cancel policy, or increase premium rate

a) cancellable
- insurer may terminate coverage at any time, for any reason by providing appropriate notice and premium refund
- is based on the entire issue of a type of policy outstanding, or a class of lives insured (ex. teachers)

b) optionally renewable
- insurer may refuse to renew, for any reason, as of the policy anniversary or premium due date
- may also limit coverage or increase premiums under certain circumstances

c) conditionally renewable
- insurer may refuse to renew at the end of a premium payment period, but only for specific reasons
- could be related to insured’s age or employment, not insured’s health

d) guaranteed renewable
- assuming premium payments are made, the insurer must continue to renew the policy, either until LI reaches a specific age or for insureds lifetime
- insurer may increase premium rate, but only if it applies to the entire class of policies
- most common

e) noncancellable
- as long as premiums are made, insurer must continue to renew policy until insured reaches specified age
- cannot under any circumstances increase premium rate

4) grace period
- 31 days to pay premium past due date without suffering a lapse in policy

5) reinstatement provision
- outlines the conditions under which the insurer will reinstate a lapsed policy
- policy must be re-underwritten before insurer will decide whether to reinstate

6) incontestablity provision
- in the absence of fraud, the insurer may not use material misrep. on an application for voiding coverage, after 2 years

7) misstatement of age/gender
- provides that if the age/gender is misstated on app, the insurer will provide only those benefits that the premium paid would have purchased based on correct age/gender

8) pre-existing condition provision
- provides that insurer will not pay benefits relating to a pre-existing cond. during first 2 years of policy
- conditions that predate policy must be specfically excluded

9) payment of claims provision
- specifies whom benefits are payable
- usually policy owner is life insured, but if life insured dies can be paid to his/her estate or beneficiary

Question 9

Describe what a pre-existing condition entails.

Answer 9

• is an illness/injury, not disclosed on the application, that first manifested within itself within a specified period before policy was issued (usually 2 years)
• insurer was aware of it and did not disclose the information (this would be a form of fraud)

Question 10

Give a summary of the stat conditions included in a health insurance policy.

Answer 10

1) contract
- entire contract consists of application, policy, any documents attached to it when it was issued, any subsequent amendments agreed to in writing after policy was issued

2) waiver
- insurer may not waive any condition of contract unless waiver is in writing

3) copy of application
- if requested, the insurer must supply the insured/claimant under policy with a copy of the application

4) material fact
- written statements by insured/policy owner may be used to deny/void coverage on basis of material misrep.

5) change of occupation
- benefits/premiums may be altered to reflect increase or decrease in hazards

6) income continuation
- has a relationship to the amount of insurance payable when payments are available from more than 1 source
- insurer pays for their proportion of the claim

7) termination of coverage
- policy owner may terminate at any time by providing written notice to insurer, and will receive short rate premium
- insurer may terminate at any time by providing sufficient written notice to policy owner, either in person or by reg. mail
- include pro-rata premium fund

Question 11

How is total disability characterized?

Answer 11

1) own occupation
- extremely unlikely that someone who is unskilled or who works as a laborer, would qualify for this def. of disability
- is typically restricted to professionals such as doctors, lawyers, dentists
- the insured will be considered to be total disabled even if he/she is able to perform the duties of some other job, and is actually getting paid to work elsewhere
- may be subject to change to any occupation after a fixed period of time (1-2 years)
2) regular occupation
- insured will be considered to be totally disabled if at the onset of disability, he/she cannot perform essential duties of his/her regular occupation
- is also not performing duties of any other occupation
- insured has option of collecting benefits, or working in a different occupation and having the benefits reduced ot terminated entirely

3) any occupation
- an insureds eligibility for benefits depends on the inability to work any occupation for which the individual is reasonably suited by education, training, or experience
- premiums are substantially lower than premiums for same policy with an own or regular occupation definition

Question 12

Define total disability.

Answer 12

• considers insured individual to be totally disabled at the onset of disability, he or she cannot perform essential duties of his or her own occupation

Question 13

Describe presumptive disability.

Answer 13

• certain conditions are considered to be so serious as to automatically qualify an insured as totally disabled
• include total and permanent blindness, loss of speech/hearing, loss of use of both hands/feet, or a hand/foot
• the waiting period is waived and benefit payments commence effective the date the loss occurs

Question 14

What does the waiting period entail?

Answer 14

• aka elimination period
• a time which no benefits are payable, even though insured meets the definition of disabled
• can be from 30 days to 6 months
• essentially serves the same purpose as a deductible
• insured self-insures during the waiting period
• insurer sees this to reduce total amount of benefits that must be paid, and it reduces total # of short-term claims

Question 15

Contrast between consecutive and cumulative days for waiting period.

Answer 15

consecutive
- if a claimant wants to return ro work before the end of the waiting period, but it unable to remain working, the waiting period begins again

cumulative
- allow for a temporary break and consider the cumulative # of days of disability to satisfy waiting period

Question 16

What exclusions are included in a disability policy?

Answer 16

1) losses resulting from war/act of war
2) intentionally self-inflicted injuries
3) losses arising from the insureds participation in illegal acts
4) income losses resulting from normal pregnancy and childbirth
- losses arising from complications
5) certain definitions
ex) illness that predates the policy is typically excluded

Question 17

List and describe the optional benefits offered.

Answer 17

1) future purchase option benefit
- allows insured to increase monthly benefit amount to keep pace with increases in income, without having to prove insurability

2) lifetime total disability benefit
- if insured becomes totally disabled prior to 65, (and remains so), insurer will continue to pay benefits for insureds lifetime, or until disability ceases

3) cost of living adjustment benefit (COLA)
- offers inflation protection by allowing periodic increases in monthly benefit
- adjustments can be maid annually or semi-annually

4) waiver of premium benefit
- provides that premiums coming due during the period disability benefit is payable are waived
- any premium paid during waiting period is typically refunded but some policies come with certain restrictions

5) rehabilitation benefit
- if claimant enrolls in a formal retraining program, preaprroved by insurer, that ind. becomes eligible for a rehab benefit
- typically limited to a multiple of monthly income benefits to help pay for rehab costs not covered by gov.

6) lump sum benefit
- may become payable should insured die as a result of an accident
- may come with limitations

Question 18

What are the business uses of disability insurance?

Answer 18

1) business overhead expense coverage
- pays ongoing expenses for salaries, utilities and rent if business owner becomes disabled
- uses an aggregate benefit amount, usually a multiple of business’ monthly expenses to limit of coverage provided
- benefit becomes payable after 30-60 days, and is usually paid until:
i) the aggregate benfit amount is exhausted
ii) business owner recuperates or dies
iii) business is old

• premiums paid by business are a deductible expense, but benefits received are treated as taxable income
• on the other hand, the expenses that these benefits pay for are generally tax-deductible

2) key person disability income
- indemnifies a business for financial loss resulting from illmess/injury to critcal employee
- benefits become payable after elimination period has elased, and continue for 12-24 months (assuming ind. remains disabled.)
- the estimated value of lost earnings and the projected cost of finding an appropriate replacement (if necessary)

3) business loan replacement
- should a business owner/ key person become disabled, a company’s ability to repay a loan may be impaired
- therefore, can protect the interests of both borrower and lender by providing a lump sum benefit which the buisness can use to pay off outstanding loans
- subject to waiting period, may be one year or more

4) deferred tax liabilities
- can protect owners of small businesses/ unincorporated professionals by providing either a monthly benefit or lump sum payment which can be used to discharge deferred tax liabilities
- subject to waiting period, lump sum is longer

5) disability buyout
- can provide funds to a partnership/small corp. to execute terms of a buy-sell agreement should a partner/shareholder become disabled
- must ensure that agreement and funding policy coordinate in terms of benefit, waiting period, and definition of disability employed

Question 19

Describe the accidental death and dismemberment rider.

Answer 19

• added to provide an additional benefit should death/dismemberment result from an accident
• for those unable to purchase life/health ins., an AD&D policy may be a low-cost alternative
• limited coverage commands lower premiums (except for hazardous jobs/extreme sports)
• the max benefit payable is referred to principal sum

Question 20

Explain the medical expense benefits.

Answer 20

• most commonly provided under group policies
• cover the direct cost of illness/injury
• can vary, but typically include:
  1) supplemental hospital benefits
• gov only covers the cost of a bed in a ward
• covers semi-private or private accomodation

2) hospital indemnity
- pay a specified sum each day an insured is hospitalized ($100/day)

3) presciption drugs
- co-payment usually required

4) dental care
- routine exams, cleaning, xrays, fluoride treatment, filling, extractions & anaesthics
- others provide broader coverage and may include:
i) periodontics (gum surgery)
ii) endodontics (root canal)
iii) prosthodontics (bridges, dentures)
iiii) orthodontics (braces)
- subject to deductible and coinsurance factor

5) vision care
- may specify a maximum that insurer will pay for lenses, frames or contacts

6) misc. and medical services
- ambulance charges
- physio
- private duty nursing
- paramedical services (chiro)
- home care
- prosthetic devices
- hearing aids
- other med. equip.

• a deductible and coinsurance factor generally apply

Question 21

What are the medical expense exclusions?

Answer 21

1) products, services or treatment covered by prov. health care plans
2) cosmetic surgery (other than that needed to correct the result of accidental injury/other med. reasons)
3) treatment for illness/injury occurring as a result of military service or act of war
4) med. expenses related to alcoholism or drug addiction (methodone)
5) treatment for intentionally self-inflicted injuries
- if applicant discloses a med. condtion on app for health ins, the insurer has the option to specifically exclude considtion from coverage

Question 22

Describe a deductible.

Answer 22

• is the amount that the policyholder is required to pay, per year, before any benefit becomes payable under policy

Question 23

Describe co-payment.

Answer 23

• is a small amount that the policyholder pays each time a covered service is used, or purchase is made
  ex) per prescription

Question 24

Describe coinsurance.

Answer 24

• refers to the % of all eligible medical expenses that an insured person is required to pay
  ex) most a family will pay, or you pay 50%, insurer pays 50%

Question 25

Describe maximums.

Answer 25

• may apply per item, per coverage year, or cumulatively over insured’s lifetime
• is an established dollar limit

ex) glasses

Question 26

Explain long-term care and how it works.

Answer 26

• is designed to meet the needs of those who, as a result of an accident, illness, or old age, require 24 hour care, either at home or in a nursing facility
• benefits are computed on max monthly reimbursement and are only paid in the event that qualifying expenses are actaully incurred by insured

Question 27

What are the qualifications required to receive long-term care insurance?

Answer 27

• is based upon an assessment of whether or not insured is in need of assistance due to cognitive impairment (alz) or is no longer able to perform 2 of the necessary activities of daily living:
  1) transferring - ability to move from bed to chair/wheelchair
  2) dressing - ability to dress/undress self unaided
  3) bathing - ability to bathe one’s self unaided
  4) eating - ability to eat unaided
  5) toileting - ability to get on/off toilet and care for personal hygiene unaided

Question 28

Explain the use of travel insurance.

Answer 28

• when travelling outside of canada prov health care ins. is limited
• it only covers same medical services, at the same rates that it pays in canadian dollars
• if canadians are outside of the country for more than 6 months, gov ins. may lapse
• travel ins is used to pay for out-of-country emergency medical expenses that are not otherwise recoverable
• covers emergency health care and emergency transport back to the country
• coverage is provided on a reimbursement basis
  ( first seek from gov, then private insurer)
• exclusions include:
  i) intentionally self-inflicted injuries
  ii) injuries that incurred while particapting in hazardous sports
  iii) expenses incurred for pre-existing conditions
• can also be beneficial for canadians travelling within country because not all provinces participate fully in agreement, and gaps in coverage may exist

Question 29

Describe critical illness coverage

Answer 29

• pays a lump sum benefit if an insured is diagnosed with any of a number of serious/life-threatening diseases specified in the policy and survives for at least 30 days
• has the advantage of flexibility
• may use lump sum in any ways they should and could include the following ways:
  a) to provide financial cushion during convalescence
  b) to provide an income
  c) make mortgage payments/ pay off debts
  d) cover cost of experimental/alternative nedical treatment
  e) renovate home so its wheelchair accessible
  f) fund a buy-sell agreement in a business partnership
• some insured include a pre-existing condition clause which excludes any claim that can be linked to a pre-existing condition

Question 30

How does coordinating benefits for disability insurance work?

Answer 30

• insurers have developed approaches to guard insureds from receiving medical expense benefits in excess of costs actually incurred from multiple insurers
• some will include a participation limit which is a clause that reduces the amount of disability income benefit to reflect existence of other applicable coverage
• other policies may include an integration clause, where the insurer pays only a proportional share of any claim

Question 31

Explain how underwriting in health insurance is implemented.

Answer 31

• events have a relatively low probabilty of occurring, but when they do can have significant financial consequences
• depends greatly on insured’s lifestyle
• insurers will categorize occupations to reflect degree of hazard
• will evaluate applications based on:
  i) job
  ii) medical history
  iii) sports and other activities
  iiii) personal habits
• other factors influence the likelihood that an ind. will make a disability ins. claim such as:
  i) ind. education
  ii) employment stability
  iii) seniority
  iiii) degree of job resposibility
• the extent in which a disability income benefit would replace lost salary/ wages is a significant underwriting factor

Question 32

When will disability income insurers pay benefits?

Answer 32

1) total disability that is probably permanent
2) total disability that is of limited duration
3) partial or residual disability that is probably long term
4) partial disability that is short term

Question 33

What is required for notice and proof of claim?

Answer 33

• must provide written notice of any claim within 30 days
• must also submit proof of the cause and amount of loss, and of the claimant’s right to make a claim within 90 days
• insurer will issue forms to complete and submit as proof of claim
• reasonable delay in submitted form will not invalidate claim, as long as it is no longer than one year from date the claim arises
• insurer must pay claims for other than lost income within 60 days of receipt of proof of claim
• must begin paying income continuation claims within 30 days from receipt of proof of claim and subsequent payments made at least every 60 days

Question 34

What are the health insurance tax issues?

Answer 34

• generally, premiums paid for ind. disability/health insurance policies are not a deductible expense, neither for personal or business-use purposes
• one exception relates to office overhead expense disability policies, where employer may deduct premiums
• self-employed ind. who purchase ind. health ins. may be able to deduct a portion of premium
• premiums paid for health ins. by employee or self-employed ind will qualify in claiming medical expense tax credit
• benefits received are tax-free except those received under office overhead expense disability policy (it’s viewed to be an expense)