September 2014 Q6(i)

[AKS01]

For long-term care the examiners mark scheme makes the point below:

"Immediate needs LTCI may be affected, but the impact is likely to be small or minimal as policies are priced at the point of need and survival from then is generally less than 5 years"

Can someone elaborate on what this means please?

 

[Mark Willder]

For long-term care the examiners mark scheme makes the point below:

"Immediate needs LTCI may be affected, but the impact is likely to be small or minimal as policies are priced at the point of need and survival from then is generally less than 5 years"

Can someone elaborate on what this means please?

Hi
In this question, people can get a home test kit that can diagnose Alzheimer's disease. This could be helpful for people to determine whether they would need long-term care in future. But immediate needs annuities are for people who need LTC now, so the insurer will already have priced in the need for care.
The test might also help people to predict their future life expectancy. But again this doesn't really help them much as the average term in long-term care is less than 5 years, so the insurer will be assuming that the policyholder dies before the Alzheimer's symptoms would become apparent.
Best wishes
Mark