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LP2 > Chapter 4- Health protection products > Flashcards

Chapter 4- Health protection products Flashcards

1
Q

What is an Income Protection Policy

A

Long term policy which pays weekly or monthly income, if the insured is unable to work because of a long-term illness or incapacity.
AKA Permanent Health Insurance, which needs to be renewed every year
A change in occupation must be disclosed to the insurer

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2
Q

What are the income protection policy benefits?

A

Can take a policy out between 18-60 years, the cover usually ends around planned retirement date no later than 70
-Can choose the amount of benefit needed and when it needs to be started
-insurer pays benefit after deferred period and monthly in arrears after

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3
Q

What is a deferred period?

A

Waiting period during a claim before getting the benefit. The most common deferred periods
are 4, 13, 26 or 52 weeks

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4
Q

What’s an individual policy?

A

Insurer pays directly to the insured FREE OF TAX

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5
Q

What is a rehabilitation benefit?

A

Proportionately reduced level of benefit that aims to top up earnings where an insured person has made a claim and returns to work part-time or to a different job, but at a lower level of earnings.

insurers hope that people will be encouraged to go back to work, knowing they will not lose the benefit and end up worse off.

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6
Q

What is a proportionate benefit?

A

Providing the insured with a reduced monthly benefit equivalent to the reduction in their earnings compared to their earnings in the twelve months before incapacity.

Once the insured’s earnings return to their pre-incapacity level or their claim ends, the proportionate benefit will end.

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7
Q

What are the features of a standard policy?

A

Pay out after deferred period and be paid until individual returns to work, dies or reaches end of policy.
- Unlimited number of claims can be made
-benefits are limited to a specific % of pre-claimed income
-Maximum ceasing age for policies is usually set around State Pension age (SPA)

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8
Q

What are the features of ‘Day one and back to day one’ cover?

A

Usually for self-employed
-‘Day one’ policies begin from the first day of sickness and pay out a weekly
-cheaper option. The benefit isn’t payable until a specified period (such as 30 days of continuous sickness) has elapsed, but when policy does pay out, it is from the first day of illness.

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9
Q

What are the features of Group Schemes?

A

Cover will usually cease on leaving service or retirement.
- have a higher maximum benefit of up to 75% of income as the benefits are paid to the employer and subject to INCOME TAX and NI as salary.
-Deferred period matches employers sick period 26/28 weeks
-Benefit is paid out until recovery or retirement
-benefit will cease once person recovers and goes back to work

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10
Q

What do underwriters look at for Income Protection insurance?

A

Morbidity (probability of sickness)

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11
Q

What factors affect premium rates for Income Protection policies?

A

-Age
-Health
-Smoking
-Occupation
-Hobbies & pursuits
-Deferred period

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12
Q

What type of occupation category is it if the individual is unable to perform in their current state?

A

Own occupation- most convenient and highest premiums

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13
Q

What type of occupation category is it if the individual is unable to perform their current role or similar role which requires similar skills?

A

Suited Occupation

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14
Q

What type of occupation category is it if a person is unable to perform ANY role?

A

Any Occupation

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15
Q

What are the risk classes of occupations?

A

Class 1- managerial, executive, clerical
Class 2- Shop workers, skilled light manual workers
Class 3- skilled workers in non hazardous manual jobs
Class 4- skilled workers in hazardous jobs
(Class 1 (low risk) to class 4 (high risk))
Some insurers need to be notified of any changes ro occupation during term of the policy

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16
Q

What are the different terms of health policy?

A

-Guaranteed= premiums remain constant
-Reviewable= insurer reviews premiums in light of the insurer’s overall claims history
-Renewable= short term policies can be renewed

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17
Q

What is the process for Income protection policy claims?

A

Benefits only paid when the individual is incapacitated and is unable to work due to illness or injury
-Once incapacitated= should notify insurer in writing ASAP. At the end of deferred period insurer can ask for medical evidence OR the insured can submit their own medical checks to verify claims

-Company usually require periodic medical certificates for period of the claim

-most policies have exclusions attached to prevent claims such as: alcohol, drug misuse, attempted suicide, war, pregnancy, private flying and HIV & AIDS

-Insurer may ask for evidence of earnings before sickness making sure that level of benefit doesn’t breach maximum payable benefit

-Once claim is valid and accepted and deferred period has passed= policy pays out until: individual returns to work, end of policy and death

-IF the insurance company does not expect the person to recover from their incapacity, it may offer a commuted lump sum rather than continue to pay the benefit on a regular basis for the rest of the claim period.

-An individual can recover and later relapse. Some policies contain provision wavering deferred period on the second claim- insured can return to work without worrying about another deferred period

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18
Q

What is a Critical Illness Cover (CIC)?

A

Pays lump sum on diagnosis of one of a number of specified critical illness, e.g. cancer, heart attack or stroke.

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19
Q

What is the main benefit of Critical Illness Cover?

A

CIC long-term insurance policy, recieve TAX-FREE lump sum if diagnosed on one of the mentioned illnesses in the insurance policy (can use policy proceeds to pay off mortgage or other loans)

However, CIC can be expensive & no guarantee policy will cover condition affecting the person

Can pay out= if insured person has a particular medical treatment e.g.: ‘aorta heart surgery’
- reduced sum assured can be payable for some critical illnesses e.g. minor cancer where chances of death are low
-policy can pay 10% of sum assured if condition is less serious rising to 50%- 100% if severe

-Severity Based Cover= additional payments made if disease progresses beyond a particular stage

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20
Q

What is a Standalone CIC policy?

A

No life cover, can be guaranteed or reviewable. Some policies have a
limited term; others are ‘whole life’ CIC policies.
-Premiums are higher because of higher risk
-Pay out regular instalments

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21
Q

The features of ‘Policies combined with life assurance’ CIC policy?

A

Sum assured is payable on death or diagnosis of specified illness. An ‘accelerated death payment’ made during life.
-Alternative option= buy separate life and CIC policies, a little more expensive but increases chances of payout on diagnosis of critical illness and death

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22
Q

What is a reviewable CIC policy?

A

Policies reviewed every 5 years or 10 years on present rate at the time
-Reviewable premiums are 50% cheaper than guaranteed ones.

23
Q

Describe the Split Trusts?

A

Separates life and critical illness elements in the event settlor suffers a critical illness
-They’d want the benefits itself rather than having them paid to a third party
-On death, the benefits would be paid to another individual or the
trustees of the trust.

24
Q

What are other features of critical illness policies?

A

-Index linking= increase sum assured in line with inflation

-waiver of premium=Premiums are not payable in the event of the policyholder suffering a prolonged period of sickness or, in some cases, unemployment. Deferred period of 26 weeks

-Children’s cover=offers an additional sum assured payable on the diagnosis of a critical illness in the child. Sum assured is less

-Life cover buy back= Critical illness is on a ‘first claim’ basis, once the insured suffers a critical illness, the policy pays out and the cover ceases. Life cover buy-back options allow for a restricted form of life cover, without the need for further medical underwriting, after two years of survival after a CIC claim.

25
Q

Premiums and underwriting for CIC

A

-Underwriters take MORBIDITY factors into account for CIC e.g. previous medical history, family history and morbidity statistics
-Actuaries need to bear in mind advances in medical diagnosis techniques.

26
Q

Factors affecting CIC premiums?

A

-Age
-Medical history
-Medical history in the family
-Lifestyle

27
Q

Claims process for CIC?

A

Policy pays out lump sum of diagnosis of Critical illness and subject to a survival period of 14-30 days

28
Q

Definition of ‘Survival periods’ for CIC policies?

A

Relevant to standalone polices rather than combined policies
-Standalone policies-pay out on the diagnosis and survival of a critical illness
-Combined policies will pay out on the first event of death or critical illness.
Life office needs to check that:
* the policy covers the diagnosed illness;
* it was not a pre-existing condition; and
* the policyholder had disclosed everything that was relevant to the policy at inception.

The onus is on the policyholder to prove the claim. CIC will only pay out if the insured gets one of the specific medical conditions or injuries listed on the policy

29
Q

What are the specified medical conditions for CIC?

A

Example of conditions:
* heart attack;
* stroke;
* coronary artery bypass;
* certain types and stages of cancer;
* conditions such as multiple sclerosis, motor neurone disease and Parkinson’s;
* kidney failure;
* major organ transplant;
* blindness; and
* Alzheimer’s.

30
Q

What are the excluded conditions for CIC?

A

-Health problems that are known about before the insurance is taken out are likely to be excluded from the outset.
-There will be standard exclusions, such as self-inflicted diseases, drug or alcohol abuse, failure to follow medical advice and HIV and AIDs

31
Q

What are severity conditions for CIC?

A

-Some policies give a description of how severe an illness needs to be before the insurer will pay out.
-some procedures covered under the policy e.g. heart valve replacement

32
Q

Define acute and chronic condition for CIC?

A

Acute conditions= rapid onset. Treatment is short duration and will often rectify the condition fully or almost fully. Examples are hip
replacements and the removal of an appendix

Chronic conditions=long lasting and incurable conditions for e.g. asthma, some forms of cancer and diabetes.
-some insurers now pay PARTIAL BENEFITS for less severe forms of disease

33
Q

Taxation on CIC

A

NO INCOME TAX OR CGT LIABILITY
-Group CIC by employer is also exempt from tax. Employer pays premium and that is taxable benefit-in-kind on the employee for income tax purposes

34
Q

What is a Personal Accident and Sickness Insurance (PAS)?

A

-Pays out if insured suffers a serious/fatal accident or injury
-Most contracts can be annual but some can be taken out for a shorter term
-can be a STANDALONE cover or add-on to motor insurance or travel insurance

35
Q

What are the features of PAS?

A

-Monthly premium is paid that usually stays the same during the length of the policy

-In return insured receives cash benefit if they have a serious accident/serious injury during policy term

-PAS policies pay out cash lump sum if insured suffers an accidental bodily injury WITHIN a specified period e.g. death, loss of an eye, permanent disablement, loss of arm, hand etc…

-Amount of benefit payable depends on nature of injury and level of cover

36
Q

What are the benefits of PAS?

A

-Refund of medical expenses up to a specified % of the cost insured
-May be weekly sickness benefit payable
-Short deferred period (7,14 or 28 days), then benefit is payable for a LIMITED time for 1 or 2 years as a FIXED sum
-Cover can include a spouse or insured children’s up to 16/18 may be restricted

37
Q

What are the exclusions of PAS?

A

-being under the influence of alcohol/drugs
-willful exposure to needless danger
-Suicide
-physical defects/illness existing before cover
-Hazardous sports
-war

38
Q

Taxation on PAS?

A

-NO TAX paid on PAS policy
-Income tax has to be paid by employees under a group policy

39
Q

What is Private Medical Insurance (PMI)?

A

-Provides cover against costs of private medical treatment

-PMI can enable people to get private medical care when required at a hospital of their choice

-insured person can only claim back for the cost incurred and insurer makes payment directly to health care provider after paying excess

40
Q

What are the features of (PMI)?

A

Policy pays out when insured needs Private medical treatment. Will fund:
-Medical practioners fees
-Investigations=diagnostic tests
-Treatment= theatre fees, drugs, dressings
-Accommodation costs= meals, cost of a parent staying with a young child in hospital
-PMI is for ACUTE conditions

41
Q

What are the policy conditions for PMI?

A

-Fund only for acute conditions
No guarantee that policies will continue to treat heart disease, cancer etc… if the condition becomes chronic

42
Q

What are the features of basic budget plans PMI policy?

A

-Suits those with smaller budgets
-Cover only restricted to costs of accommodation, drugs, dressing and doctor’s fees
-May be limits on cost of treatment

43
Q

What are the features of mid-range plans PMI policy?

A

-Suitable for those with higher budget who wish to extend cover
-Provides cover for more items with longer claim periods and higher limits
-wider choice of hospital and out-patient treatment likely to be covered
-cover includes= consultant fees, diagnostic tests and services such as physiotherapy to a set limit

44
Q

What are the features of comprehensive plans PMI policy?

A

-Claim periods are longer with higher limits
-Home nursing and private ambulances are covered
-cover the costs involved in a parent needing to stay at a hospital with a child who is ill/injured
-Choosing from a wide range of hospitals
-other items covered such as: alternative medicine, dental treatment, travel abroad
-policy can cover a whole family

45
Q

What is the application and underwriting process for PMI?

A

There can be an individual policy set up as: Single, joint/married, single parent and family

Group Cover= premiums are lower
-Can be reduced underwriting for groups of more than 20-50 or no underwriting at all if cover is automatic for all of those at work
-if employer pays the premiums, employees are subject to income tax

46
Q

What is a Moratorium Underwriting?

A

Involves excluding pre-existing medical conditions from cover for a number of years
-Forgoing immediate medical evidence, contract can be set up immediately and avoid the inconvenience of a medical examination
Reason= Excluding pre-existing condition reduces value of the cover but makes it easier to obtain

47
Q

The claims process for PMI?

A
  1. Claims start with referral from a GP or emergency admission to an NHS hospital
  2. Contact the insurer and check that the insurance company agrees of funding the treatment
    OR
  3. Insurers have specialist teams to discuss potential claims before agreeing to a treatment and claimant will need to have a sign-off on treatment from nurse
    SOME
  4. insurers have ‘open referral’ system- patient GP refers the patient to a specialist, insurer appoints specialist and hospital
  5. When making a claim, medical evidence needs to be provided relating to needs and cost. Insurer makes payment directly to the hospital (claim payments are TAX FREE)
  6. PMI policies are annually renewable, premiums can increase each year after claims or insurer can decline to renew
48
Q

What is an Accident Sickness and Unemployment (ASU) insurance?

A

Referred to as short-term income protection

49
Q

What are the features of ASU insurance?

A

-Monthly/weekly benefit payable if insured is unable to work due to accident, sickness and unemployment
-benefit payable 1-2 years
Deferred period of 30-60 days
-Pre-existing medical conditions are excluded and voluntary redundancy and dismissal
-benefit limited to a set % of earnings
-May be lump sum benefits for loss of sight and limb
INDIVIDUAL POLICIES=NO TAX
Group policies= employees liable to income tax BUT benefits payable are tax free

50
Q

What are the exclusions for ASU insurance?

A
  • Limited to incidents occurring at work
    ASU is a common choice for those who don’t have IP made available to them and premiums are also lower
51
Q

What is a long-term care insurance (LTCI)?

A

-Paying for all or some of costs of long-term care
-Pays regular payment or lump sum
Funds for:
Own home
Residential care cost= £704 per week
Nursing home= £888 per week
-Care cost inflation can rise higher than CPI &RPI

52
Q

What are the features of Immediate care needs annuities for LTCI?

A

-Fund care for those immediately
-Those who already need care can be covered immediately by paying single premium to buy policy
-Policies guarantee future payments towards the cost of nursing or residential home fees for as long as need.

53
Q

What are the features of Pre-funded care plans for LTCI?

A

pay single or regular premium in a ‘pool’ to insure against a possible future event
-can take out policy at any age to cover long-term care in the future
-USUALLY underwritten
-flexibility in choosing the care they wish to recieve
-NO pre-funded care plans

54
Q

What is the definition of Activities of Daily Living (ADL)?

A

Eligibility for LTCI is determined by ability or lack of ability to complete activities of daily living
Analysis is done on clients care needs and level of financial support required
6 ADLS-
-Functional mobility
-Bathing/showering
-Dressing
-Self-feeding
-Personal hygiene and grooming
-Toilet hygiene

LP2 (9 decks)

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