long term care

[padmaja]

query 1:
Page 20 unit 3 says " Insurers recognise
that for this type of product and at this advanced age the effectiveness of the review is limited and therefore the guarantee has less significance".

why is the guarantee insignificant and why effectiveness of review is limited. I could not follow the self assessment question 3.13's solution. can someone elaborate please.

query 2:
under various methods of funding the premium, it says "retrospective payment, from the equity released after the sale of the home". Did not understand what does it mean?

 

[Sarah Byrne]

Remember that long-term care insurance is genereally sold to people who are older. If the insurer realises that after 10 years the premium charged was too low and needs increasing, some of the policyholders will have died. So the guarantee only bites for the survivors, meaning it costs the insurer less than for other products.

Even if policies have revewiable premiums, when the review takes place some policyholders will already be claiming benefit and so the premium may be waived (and so the insurer won't get any increase in income from the review). Even if the review occurs and premiums are increased before the policyholder claims, given the policyholder's age, the insurer is unlikely to receive the increased premiums for a long period of time.

So, the impact of reviewable premiums is limited and guarantees cost the insurer less.

On your second query, this would work as any equity release product. The insurer would either give the policyholder a lump sum to pay for care, or pay the benefit directly to the care provider. In return for this, when the individual's home is sold and the proceeds are given to the insurer.

Sarah