Flashcards in Chapter 3 Long-term care insurance Deck (23):
What Long-term care insurance?
-Long-term care might be defined as all forms of continuing personal or nursing care and associated domestic services for people who are unable to look after themselves without some degree of support. Whether provided in their own homes or in a State-sponsored or care home setting.
-It is essentially for people who are not going to get better.
-It is distinct from acute medical care, as it is not principally concerned with curing or alleviating particular medical conditions.
-The care is designed to treat the results of the condition rather than the condition itself.
-Eg reduced ability to going to bed, washing, personal care, cooking meals.
Needs covered by Long-term care insurance:
-Long-term care covers a wide variety of needs.
-An optimal long-term care programme helps people regain as much independence as possible, slow down the rate of deterioration and provide necessary care support and environment to maintain wellbeing.
The costs of care can divided into the following categories:
-Living costs - food, clothing, heating and amenities, etx.
-housing costs - rent, mortgage payments and council tax.
-personal care - the additional costs of being looked after, arising from frailty or disability.
-Personal care includes all forms of care directly involving touching a person's body, incorporating intimacy, personal dignity & other confidentiality.
-This is the narrowest form of long-term and can be defined as care that requires the specific knowledge or skills of a qualified nurse.
-At its most restrictive this would require technical assessment of healthcare needs and specific interventions that require technical competence and knowledge of disease states, which only a nurse could provide.
-Broader definition might cover costs of registered nurse in providing or supervising care in any setting.
What intermediate care?
-This focuses on recuperative services following an acute event (eg heart attack, a stroke or an accident) in order to reduce avoidable hospital admission & minimise on going long-term care.
-The services should incorporate intensive therapy and support.
What is informal care?
-Care may be given either formally or informally.
-Informal care may be limited to no more than 4 hours a week, a smaller group provides substantial levels of personal care and practical help.
-It should be noted that many of those provision substation levels of care are themselves over age 60.
-Informal care has an indirect cost in terms of either lost economic activity or price of replacing the care support should it no longer be provided.
- If the informal care sector shrinks then the demand for insurance products may increase.
Types of long-term care insurance:
-Long-term care is a product that aims to indemnify the insured for the additional costs of day-to-day living they are need of long-term care that qualifies for payment under terms and conditions of their policy.
-In order to control costs there may be limits on payments. In this case the policy does not provide full-indemnity.
-Immediate needs plan
Pre-funded long-term care
Pre-funded, are purchased by relatively healthy people to protect them against the risk of future disability. Usually secure by a single premium at the outset or by level annual premiums throughout life time
-or until a specified age, normal retirement age, with a premium waiver when a claim is being paid.
Immediate needs cash plan
-This protects the insured against the uncertain survival duration.
-These contracts are in effect impaired life-annuities secured by a single premium paid at the start of the contract when the insured needs care as a result of failing health.
-Insurers see to offer cover for as many applicants as possible.
Pre-funded products: Claim definition
-The benefit payment is dependent upon the claim definition, which may be triggered by a single event or by a multiple set of events.
-The single event may be dependent a level of disability and its continuation for a specified period.
Activities of daily activity used as claims triggers:
-washing - ability to maintain adequate level of cleanliness.
-toileting - ability to manage bowel and bladder function.
-mobility - ability to move indoors/outdoors.
-in addition there may be a mental impairment trigger.
-The claim trigger requires the policyholder to be incapable of performing a number of these activities alone and without endangering the health of the policyholder or others.
-Some restrictive plans may require all of the events to be triggered before a payout.
How long term care cover can be provided?
-Benefits can be provided as an optional addition to another policy eg PMI, CI, Whole life or disability policy.
-When added to CI policy the definition may change from occupation related to loss of independent existence i.e. failure of ADL.
-Long-term care may be provided as an accelerator to whole life assurance eg 2% of Sum insured.
Long-term care : Benefit types
-The type of benefit could be selected from a range of alternatives, including a single lump sum payment, an annuity certain, a lifetime benefit subject on-going disability, or a restricted benefit subject to ongoing disability.
Standard benefit of Long-term care
-The length of deferred period, normally 3 or 12 months.
-the rate of benefit escalation: normally level, a fixed rate or inflation linked.
-the length of payment period:normally lifetime or fixed period like 3 years.
-The plans often provide a fixed number of monthly benefits to cover cost of any assistive devices like:grab rails, personal alarms, stair lifts, bathing seats, etc.
-Other plans provide cash benefits.
-Provision independent care advice at claim stage.
-The most basic regular premium products do not provide a death benefit.
-Basic single premium products may amortise this premium over 5 years and pay back remaining premium upon death.
-Most products do not offer surrender benefits.
-There is risk of windfall benefits with such a design, as insurance may make payments without any financial loss being incurred.
Premiums: Methods of funding
-restricted regular payments that either stop: at certain age or during defined level of disability.
-retrospective payment, from the equity released after sale of the home.
Regular premiums will usually escalate in line with the chosen benefit escalation rate and will include waiver of premiums on triggering the disability benefit.
Premiums: Guaranteed terms
-Long-term care insurers may provide both guaranteed and reviewable products.
-Older people with fixed incomes may choose these options because they cannot afford an additional premium or a reduced benefit.
-Insurers recognise that for ages 70 to 75 the effectiveness of reviewing is limited and therefore the guarantee has less significance.
-guaranteed premiums will include a substantial loading compared to reviewable premiums.
Immediate needs products
-They product individuals needing care from their uncertain survival duration, and thereby provide more certainty of their capital costs.
-The insurance provides a guaranteed lifetime income on payment of a single premium.
-The premium is calculated based on individual's health status.
-Unlike pre-funded plans these have immediacy of need.
-For the consumer the insurance premium may help determine the most appropriate nursing home.
-Some plans seek to immunise the insured against escalation clauses to future care costs by pre-agreeing escalation rates.
-The benefit amounts could be level or at a fixed rate.
Immediate needs benefits structure:
-The policyholder can also select a death benefit. This could be structured as:
-A minimum payment period
-by amortising the single premium
-by providing capital protection of part of the single premium i.e. part of the premium will be returned on death.
Variants of Long-term care insurance design: Aims of Unit linked products
-single premium unit-linked long term care insurance products are a further alternative.
-it was recognized that a product with no surrender or death benefit is unattractive.
-unit linked solution aimed to be primarily a flexible investment contract and secondly a long term care product.
Operation of a unit-linked long term care insurance product
Policyholder pays a premium (a single premium is more common fir this type of policy)
-most of the premium will be used to buy units and some will go to the insurer’s nonunit fund.
-regular charges are made from the unit. Eg risk charges, fund management charges , policy admin charges.
-expenses the insurer incurred are paid out of the non unit fund.
-the benefit paid on death or surrender will be the bid value of the units, from unit fund. Unless there’s a guarantee in excess of unit fund in which case will be paid from non unit fund.
-long term care benefits will be paid outta the nonunit fund. These represent protection aspect of policy. The monies in the unit fund may also be used to pay for long term care benefits.
Fun protection options:
There’s often a choice of long term care insurance claims triggers that provide different levels of fund protection:
-protecting the entire investment fund
-protecting the initial investment
-allowing the entire fund to be exhausted
Risk charges on Unit-linked long term care insurance products.
-this is the risk premium deductions made from the unit fund to cover risk exposure during that period, which would depend on the deferred period.