Chapter 5 - H&C insurance products (Income protection) Flashcards
What is the aim of IP
- It is to replace part of the income the life insured would have earned if he or she becomes unable to work due to accident or illness
What is the difference between ill-health retirement pension and income protection
- Ill-health retirement pension will be paid for the rest of your life if you are judged to be PERMANENTLY unable to work between now and normal retirement age
- IP will pay out if you are either temporarily or permanently unable to do your job, and will pay benefits until retirement age
What are the main needs addressed by IP insurance
- Replacement income when the policyholder is unable to continue in his/her own occupation, and cannot earn an income
- An income stream to match the policyholder’s monthly loan servicing costs
What groups of people perceive the greatest need for IP
- The employer who is keen to pass on the financial responsibility of sick employees to an insurer after a limited period of invalidity
- The self-employed person, who does not have the comfort of an employer-sponsored scheme and who must purchase individual IP cover
- Individuals who do not have provision through their employer
What should the general policy conditions aim to do
SAT
- It must be SIMPLE and unambiguous, so as to assist the sales, underwriting and claims processes
- give some cushion against ADVERSE events over which the office has no control
- reflect the TRUE intentions of the office
What is replacement ratio
It is the ratio of post-claim income to pre-claim income, net of income taxes
What is over-insurance
It refers to a higher than appropriate replacement ratio
How can over-insurance arise
- From outset
- Subsequent over-insurance, through salary not keeping up with the benefits
- A reduction in the tax levied on IP claims, applying to existing policyholders
- Multiple policies or receipt of other non-disclosed sources of income
How can product design attempt to avoid over-insurance
MRTC
- An appropriate MAXIMUM benefit formula at point of sale
- regular REVIEWS to ensure that the level of benefit remains appropriate
- TRAINING of those conducting the sale, reducing the incentive to over-insure
- CLEAR policy conditions highlighting the likely action at claims stage in the event of over-insurance
What are proportionate or rehabilitation benefits
IP products may provide a rehabilitation or proportional benefit to those who return to work on a part-time basis or in a less strenuous (and lower paid) role
What is the waiting period
It is a specified period following the commencement of the policy during which benefits will not be paid
What is the deferred period
The insurer will not usually pay benefits during the first few weeks of sickness. This is known as the deferred period
What are the main reasons that contracts have a non-zero deferred period
I CAN
- to INTEGRATE with employer-supplied benefits
- to reduce the cost of CLAIMS to the insurer
- to reduce the insurer’s ADMINISTRATION costs
- to meet true customers NEEDS; i.e. most customers would not want to submit a claim for a couple of days off with flu
What are the occupational-based definitions of a claim
- Inability to perform own occupation
- Inability to perform own occupation and any other suited occupation by education, status or training
- Inability to perform own occupation for an initial period of claim followed by the inability to perform any occupation thereafter
- Inability to perform any occupation
What are the alternatives to occupational-based definitions to define a claim event in terms of an inability to perform various tests
- Activities of daily living (ADLs)
- Functional assessment tests (FATs)
- Activities of daily working (ADWs)
- Personal capability assessment (PCA)
