Hi Steve Please can you answer a few questions. 1) Unit Linked investment product with long term care insurance. The way I understand this product is that you start by investing a single payment into the fund at the start and regular risk premiums are deducted from the fund afterwards. You can draw down amounts from the fund on a regular basis (is this whenever you want to?). when you make a claim and want to start receiving benefits what happens to the fund? Is the fund used to pay for the care costs while you are disabled? How is it used eg is the money taken out and paid directly to pay the care providers or used to buy eg an annuity? 2) What is the difference between LTC based on immediate needs solutions and an impaired annuity? 3) What is the bit about amortising single premiums? Is this just the surrender benefit? 4) Can benefit under LTC be cash or indemnity (full and partial)? 5) The core reading states that data should not be split by sex and smoker status when deriving PMI claim incidence rate assumptions. Why is this? 6) What is the difference between claim recovery and claim termination? 7) If premium by experience rating = cf*premium from past experience + (1 – cf)*book rate, where cf = credibility factor, where does the burning cost come into this? 8) What is the difference between deferred and waiting period? Thanks
1) What happens can vary and it very much depends on the policy conditions of the actual product. First off, there may (or may not be) restrictions on whether you can make withdrawals from the fund. If, for example, the main purpose is to provide LTCI protection, then this may not be permitted. What happens to the fund on claim vary too according to the level of fund protection – the three options here are described in see page 17 of Chapt 3 of ActEd notes: (a) if the entire investment fund is protected, then the insurance company will pay all the claim costs (e.g. care costs up to the specified limit) (b) if the initial investment is protected, then the fund will be used to pay the claims costs until the fund drops to be the value of the initial single premium, then the insurance will kick in (c) if the entire fund is allowed to be exhausted, then the fund will be used, but once it’s exhausted then the insurance will apply. Obviously, the risk premiums that are charged will reflect the treatment applied (with (a) being the most expensive). The form of the benefit can vary too – see Core Reading parag on page 10 of Ch 3. Regular payments to pay for care would be most common, but if a single lump payment was offered, I guess that could be used to purchase an annuity, yes. 2) If the immediate needs annuity (INA) solely provided fixed regular benefits, the products could be considered to be quite similar. However, their purposes are different. INAs aim to provide benefits to people who are already in the need of long-term care (e.g. just about to move into a residential home) and the purpose of it is to pay for their care needs. Impaired Annuities are aimed at a wider market – anyone in poor health – and they could use the money for anything, like a pension. In the UK, for example, INA policies that pay benefits directly to care providers (and meet certain other criteria) gain certain tax advantages which impaired annuities don’t. In addition, INA benefits might escalate in line with an index of care-cost inflation, and could be designed (at least in part) to provide indemnity cover. 3. If you mean the bit on p21 of Ch 3, this is just referring to the death benefit. Effectively, part of the SP is returned on death. 4. Yes – it depends on the actual design. 5. I think this is on Ch10, page 21? It’s saying that you might not used these factors in pricing – i.e. you might charge the same premium regardless of age and sex. This might be for regulatory reasons (such is the case in Ireland where they have community rating) or simply because everybody else does, or has done in the past. It’s only relatively recently in the UK that factors other than age have been used to set PMI premiums. However, if possible, you may still want to split your DATA by these factors as part of your analysis – e.g. to work out the impact having more smokers in your book – but you’d combine up groups to arrive at your final premium. 6.Claim terminations include deaths. 7.Burning cost is the past claims experience from the actual scheme, which may be adjusted changes in benefits, lives covered, inflation, etc. It is effectively the “risk premium from past experience”, but do remember that this is for claims costs only, so you’d have to add loadings for expenses, profit, etc to the combined premium to come up with a final premium. See too http://www.acted.co.uk/forums/showthread.php?t=999 8. Both terms are in the glossary. WP starts from policy outset but DP starts from sickness inception.
