Learning Material Sample
Financial protection7. Critical Illness InsuranceLearning outcome 7: Understand the range, structure and application of critical illness insurance to meet financial protection needs
In this chapter we will examine the need for critical illness protection, the features and product design of critical illness plans, underwriting and claims considerations, the difference between individu...
Shortened demo course. See details at foot of page. ...is from a consumer information program we created covering a variety of financial education areas. This presentation will be of most benefit to those learning about this area for the first time:
Advances in medical science and higher than expected claims experiences have had a major impact on CIC design, structure and premium rates in recent times.
During 2003 most insurers withdrew their guaranteed rates for CIC as a result of two main re-insurers withdrawing guaranteed rates due to higher than expected claims. The resulting contraction in the market pushed premium rates higher. By the end of 2003, most insurers had replaced guaranteed rates with reviewable premiums. However, as more reinsurance capacity has become available in recent years, more insurers are now again offering guaranteed rates. Improving medical science has meant that some illnesses which were previously very serious are now treatable and have a much better prognosis. Again, this has been reflected in higher than expected claims. CIC definitions have been tightened up, some illnesses previously covered have been removed and premium rates have increased as a result. With constant changes in medical science it is likely that CIC definitions and product development will continue to evolve. However, where a plan is issued the definitions contained within the policy document cannot be changed or altered in the future. For this reason it is particularly important to review the terms and conditions of existing CIC plansly careful if considering a replacement, as although the replacement plan may offer cheaper premiums, it may also offer lower coverage. Why were guaranteed rates largely withdrawn from the market between 2002 and 2003? Answer : Purchase course for answer Many life offices offer stand-alone policies with no life cover attached. These can be guaranteed or reviewable and are often written as a unit-linked plan. These policies can be for a limited term or on a whole-of-life basis.
If critical illness cover is added to a life policy it ... Shortened demo course. See details at foot of page. ...terms, which is often two years. Where critical illness cover is added to a unit-linked policy the morbidity risk premium is usually paid for by the cancellation of units.How is critical illness cover treated if it is added to a life policy? Answer : Purchase course for answer Underwriting for CIC is based on morbidity rather than mortality and is therefore closer to the underwriting for income protection than for life assurance. Medical history is particularly important and will include questions not only on the life assured but also in respect of their immediate blood relations, to look for any inherited conditions (e.g. heart...
Shortened demo course. See details at foot of page. ...means that premiums can be lower at the start but there is no indication of how much they may increase over the term of the policy.Due to the increasing cost of guaranteed premiums, reviewable products are now becoming more popular. Why would underwriters ask questions about the health of close relations? Answer : Purchase course for answer Each separate policy will offer different levels of cover and all the illnesses covered by a policy will be specified in the policy document, including any definitions related to the condition. Most polices will offer a core list of illnesses for a basic premium and may also offer additional cover for a higher cost. The ABI requires all policies to cover cancer, heart attack and stroke.
The core conditions usually offered are: Cancer End stage kidney failure Heart attacks with evidence of coronary heart disease Loss or hearing, speech or sight Loss of limbs Major organ transplants Multiple sclerosis Total and permanent disability Stroke Other additional conditions which may be covered include: AIDS/HIV Alzheimer’s disease Angioplasty Aorta graft surgery Aplastic anaemia Bacterial meningitis BSE/CJD Cardiomyopathy Cardiovascular disease Coma Coronary heart by-pass Diabetes mellitus Heart value replacement Hodgkin’s disease Liver failure Motor neuron disease Paralysis Parkinson’s disease Severe burns Terminal illness Thrombosis Valvuloplasty Each pr... Shortened demo course. See details at foot of page. ...fe assured has survived two years from the initial claimWaiver of premium can be added to a policy to allow for premiums to be treated as paid in the situation where the insured suffers a prolonged period of non-critical illness or unemployment. A deferred period usually applies after which the policy holder will be able to stop paying premiums and still have the security of the continued protection until a claim is made, the policy ends or they return to full health Terminal illness cover will allow the sum assured to be paid out if the insured has a life expectancy of less than 12 months, but often will not pay out in the last 12 or 18 months of a policy Some policies allow index-linking allowing the sum assured to be increased each year at a set percentage or in line with inflation without further evidence of health, however if this option is taken premiums will also increase each year Some policies will also allow the sum assured to be increased on a number of specified life events without the need for further medical evidence What are the core conditions usually included in most CIC plans? Answer : Purchase course for answer On submission of a successful claim the insurer will payout a lump sum as per the terms of the policy. It is important to note that the burden of proof is on the claimant and that they must bear the cost of any medical evidence required.
When a claim is submitted, the insurer will test the details against the definitions set out in the policy document and will then examine the medical evidence to ascertain: Whethe... Shortened demo course. See details at foot of page. ...he policy and refuse all past and future claims, but the premium must be returned- If the insurer would have accepted the risk but on different terms it can treat the contract as if those terms applied and where the insurer would have charged a higher premium any claim can be proportionately reduced Who is responsible for the medical costs incurred in proving a claim? Answer : Purchase course for answer The payment of a criti...
Shortened demo course. See details at foot of page. ...sed liability for IHT. Where a policy includes both life assurance and CIC it can still be written in trust but this does create a problem. Under the terms of most trusts the life assured will not be the beneficiary or even potential beneficiary, meaning that the benefits payable would not be paid to them. For life assuranc...
Shortened demo course. See details at foot of page. ...a claim without the usual requirement for a grantThe CIC benefits are held for the absolute benefit of the life assured meaning that they will have full access to the benefits Why would a normal discretionary trust not be suitable for a plan that includes CIC? Answer : Purchase course for answer There is an increasing trend for employers to purchase group CIC cover for their employees:
These are usually available to larger employers and can be written on a similar basis to group death in service schemes, although not as a registered pension scheme They may include free cover limits, where a specified sum assured is ... Shortened demo course. See details at foot of page. ...would cease on retirement or when the employee leaves serviceSums assured are usually a fixed amount or a multiple of salary Benefits are usually paid directly to the life assured and are therefore tax free How would premiums be treated for tax purposes if paid for by the employer? Answer : Purchase course for answer Income protection and critical illness plans are designed to meet different needs:
Income protection Critical illness Income protection plans are designed to replace income in the event the insured is unable to work due to sickness or injury. There are no specified illnesses or conditions. Critical illness plans pay out a lump sum only on the diagn... Shortened demo course. See details at foot of page. ...ack cover may be available but this will only provide cover for a new critical illness.Income protection provides a replacement income to maintain the insured’s lifestyle whilst they are unable to work through sickness or injury. Critical illness provides a larger lump sum payment that could be used for any purpose including paying off liabilities. This revision test (opens in a new... Shortened demo course. See details at foot of page. ... test will be added to your CPD certificate. |
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