Hi, I'm reading page 21 of chapter 3 LTCI, the section 4.2 'cash benefit'. I have 2 questions: 1. The page says that sales persons promote the 'flexibility of cash benefits'. Could anyone explain why the LTCI with cash benefit is more flexible than those traditional product with benefit according to cost incurred (subject to upper limit)? 2. The page mentions that the disability trigger might not be enough to protect insurer against exploitative claims, and evaluation of ADL is to some extent subjective. Shouldn't these be issues with traditional LTCI product? I just don't quite get why the page list these explicitly for section 4.2. Does that mean these issues are more severe for product with cash benefit? Why? Any feedback will be appreciated. Terry
1. A cash benefit is more flexible as the policyholder can choose what to do with it. In the case of an indemnity product, the benefits would be likely to be paid straight to the provider of care (eg the nursing home), whereas with a cash benefit, the policyholder could choose whether to spend the money on a nursing home or on informal care or on modifying their house etc. 2. Yes, I think these issues will be true of any LTCI product (and in fact, the notes have been rearranged somewhat for the 2013 exam sessions to reflect this). I suppose we could argue that it is more relevant if there is the possibility of windfall payments (which is a risk that exists if there are cash benefits), as the insured may be more likely to exaggerate the severity of their condition in order to get the benefits. For example, you might pretend that you couldn't feed yourself if you knew it would get you an extra £500 a week, although you'd be less likely to pretend you couldn't feed yourself if it led to a carer coming in to do it for you!
