Topic 12 Flashcards
Health and general insurance
What is critical illness cover?
Critical illness cover provides a tax-free lump sum to meet additional costs if someone faces a serious illness. The illness does not need to be terminal and can include conditions like cancer, heart attack, stroke, major organ transplant, multiple sclerosis, and kidney failure.
What conditions are typically covered under critical illness cover?
Typical conditions covered by critical illness insurance include most forms of cancer, heart attack, stroke, coronary artery disease requiring surgery, major organ transplant, multiple sclerosis, kidney failure, and other conditions like paralysis, blindness, and loss of limbs.
What is the provision for total and permanent disability under critical illness cover?
Many policies provide a lump sum payment if the policyholder suffers total and permanent disability. The definition of total and permanent disability can vary, with some insurers defining it as an inability to do any job for which the person is suited, while others define it as an inability to perform any job at all.
What is income protection insurance (IPI)?
Income protection insurance (IPI) pays an income if an accident or illness prevents someone from working in their usual occupation. Some insurers also offer IPI to those who primarily manage responsibilities in the home, such as childcare or housekeeping, to cover the costs incurred when they are ill or injured.
What are some typical uses of critical illness cover?
Typical uses of critical illness cover include covering long-term care (home or hospital), medical equipment, mortgage repayment, enhancing quality of life, and alterations to living accommodation.
What factors affect premium rates for income protection insurance (IPI)?
Factors affecting premium rates for IPI include the occupation of the life insured, age, amount of benefit, current state of health, past medical history, and the length of the deferred period.
How are occupations classified for IPI purposes?
Occupations are classified into four classes:
Class 1: Lowest risk (clerical, professional, administrative roles, e.g., accountants, civil servants)
Class 2: Low risk (e.g., hairdressers, pharmacists)
Class 3: Moderate risk (e.g., farmers, electricians)
Class 4: Highest risk (e.g., manual labourers, industrial chemists)
How does occupation affect IPI premiums?
Occupation affects the premium level, with those in lower-risk jobs (Class 1) paying the cheapest rates, and higher-risk jobs (Class 4) facing higher premiums. Certain high-risk occupations may be excluded from coverage altogether.
What are the two types of premiums available for IPI?
The two types of premiums for IPI are:
Reviewable premiums: Start low but are reviewed and may increase over time.
Guaranteed premiums: Higher initial cost, but the premiums are fixed for the life of the policy.
What is the waiver of premium option in IPI?
The waiver of premium option allows policyholders to not pay premiums while receiving benefits from the policy, but the cover continues as normal. The premiums are ‘waived’ during this period.
What is the deferred period in income protection insurance (IPI)?
The deferred period is the time between the onset of illness/injury and when benefits begin. Typical periods are 4, 13, 26, 52, and 104 weeks, with shorter periods leading to higher premiums.
How does the deferred period affect premiums?
The longer the deferred period, the cheaper the premium. A self-employed person may opt for a shorter deferred period, while an employed person may choose a longer one to align with employer sick pay.
What is the typical level of benefit paid under an IPI policy?
The benefit level typically ranges from 50% to 65% of pre-disability earnings for individual policies, and 75% for group policies. Some policies may deduct state benefits from this amount.
What is a ‘proportionate benefit’ in IPI policies?
A proportionate benefit is paid if the policyholder returns to work but is earning less than before the illness or injury, such as part-time or in a lower-paid role.
What factors could cause an IPI policy to be cancelled?
An IPI policy can be cancelled if the policyholder fails to pay premiums or takes up a hazardous job or pastime.
When do IPI benefits stop being paid?
Benefits are usually paid until the policyholder dies, returns to work, retires, or the policy ends. They may be index-linked to inflation, increasing by a fixed rate or according to inflation measures.
How are Income Protection Insurance benefits taxed?
IPI benefits are tax-free if taken individually. If arranged by an employer, the benefits are taxable as earned income, and the employer pays the premium as a tax-deductible business expense.
What is the main purpose of Accident, Sickness, and Unemployment (ASU) insurance?
ASU insurance is typically used to cover mortgage repayments if illness, accident, or loss of employment prevents the policyholder from earning a living, with benefits usually paid for up to two years.
How does ASU insurance differ from Income Protection Insurance (IPI)?
ASU insurance is a short-term solution focused on mortgage protection, while IPI provides longer-term income replacement for illness or disability. ASU has a shorter benefit period and typically covers only essential outgoings like mortgage payments.
What are the typical restrictions on unemployment cover in ASU insurance?
ASU policies do not cover unemployment due to voluntary resignation or dismissal. They also require the proposer to have been employed for a minimum period before the policy starts and exclude redundancy if the proposer knew it was likely.
How are ASU policies renewed, and how does this differ from IPI?
ASU policies are renewable annually at the discretion of the insurer, who may increase premiums or withdraw cover. In contrast, IPI provides long-term cover without the same annual renewal risk.
How are ASU insurance benefits taxed?
All ASU benefits are tax-free, and there is no tax relief on contributions when the plan is arranged personally. Employer contributions to a group ASU plan are tax-deductible but are considered a benefit in kind for the employee.
What does Private Medical Insurance (PMI) cover?
PMI covers the cost of private medical treatment, including in-patient charges (nursing fees, accommodation, operating fees, drugs, private ambulance), surgical and medical fees (surgeon’s and anaesthetist’s fees, pathology, radiology), and out-patient charges (consultations, pathology, radiology, home nursing fees).
What are some additional benefits offered by some PMI policies?
Some PMI policies offer additional benefits such as payment for a daily rate if treatment is delivered within an NHS hospital and involves an overnight stay.
