X1 Assignment solution to X1.1

[fortm]

Under the description for Permanent and irreversible, there is this statement that I am failing to comprehend, please help!
"By requiring that the illnesses covered are both permanent and irreversible, the insurer should be reducing the risk that claims that do not meet the purpose of the cover, ie covering more serious conditions, rather than leading to windfall claims."

 

[Mark Willder]

Under the description for Permanent and irreversible, there is this statement that I am failing to comprehend, please help!
"By requiring that the illnesses covered are both permanent and irreversible, the insurer should be reducing the risk that claims that do not meet the purpose of the cover, ie covering more serious conditions, rather than leading to windfall claims."

Hi

The purpose of critical illness insurance is to provide a large lump sum to meet the costs arising from very serious illness. If the illness was temporary then presumably the costs would be fairly small - PMI and income protection would be more appropriate to cover temporary illnesses. If critical illness paid out for a less serious temporary condition then this could be considered a windfall payout, ie the large lump sum benefit would be much larger than the costs incurred by the policyholder.

Best wishes

Mark