Risk characteristics CI as a rider

Discussion in 'SP1' started by MindFull, Dec 10, 2020.

  1. MindFull

    MindFull Ton up Member

    Hello,
    In chapter 7 under risk characteristics, the example stated that to reduce the risk associated with a new CI launch, you could use the CI as a rider to a term policy where it would become an accelerated death benefit. Why in this case is it seen an an ADB (since it's CI and not terminal illness) and why is pricing the CI as a rider less risky?

    Thank you.
     
    MindFull, Dec 10, 2020
    #1
  2. Anna Walklate

    Anna Walklate ActEd Tutor Staff Member

    Hi,
    Critical illness and terminal illness are not mutually exclusive. Many critical illnesses are terminal, and many terminal illnesses would count as a critical illness. Depending on the list of CIs covered, you might find that the majority of the illnesses are life-threatening, and so would be an acceleration of the death benefit. Of course, for other contracts - covering less life-threatening CIs - this would be less the case.
    If you are using it as a rider to an existing TA policy, then some of the claims would have been paid anyway under the standard term assurance, namely the ones where the policyholder both gets a CI and dies. So the CI risk is reduced to the extent that there will be fewer "new" claims.
    I hope this helps,
    Anna
     
    Anna Walklate, Dec 10, 2020
    #2
  3. MindFull

    MindFull Ton up Member

    Hi Anna,
    I'm sorry I'm still a little confused. I thought based on the reading that we are comparing a CI stand alone to a term + CI rider. So if any CI is diagnosed, it would trigger a claim under both the stand alone and the TA + rider. That's why I was wondering why offering CI as a rider would reduce risk Vs offering it stand alone. Perhaps I have misunderstood the reading? Also, for the claims where you get a CI and then immediately die, wouldn't those be excluded from a stand alone CI?

    Thanks again.
     
    Last edited: Dec 10, 2020
    MindFull, Dec 10, 2020
    #3
  4. Anna Walklate

    Anna Walklate ActEd Tutor Staff Member

    I think we are making the assumption that we already sell term assurance policies ...
     
    Anna Walklate, Dec 10, 2020
    #4
  5. MindFull

    MindFull Ton up Member

    Hi Anna,
    Yes, I agree but I was curious about the reduction of risk when CI is used a rider Vs standalone if a CI diagnosis would trigger a claim under both.
    Thanks.
     
    MindFull, Dec 10, 2020
    #5
  6. Anna Walklate

    Anna Walklate ActEd Tutor Staff Member

    Well if you also sell TA policies, then a policyholder who got a CI and then died could claim on both a TA and a SACI policy (so you'd pay out twice), but if you sell it as a rider to the TA, then you'd only pay out once ...
     
    Anna Walklate, Dec 10, 2020
    #6
  7. MindFull

    MindFull Ton up Member

    Ohh I see. The death benefit for the TA also counts in the overall experience. I thought we were strictly speaking about the CI experience. Thanks for bearing with me Anna!

    Regards.
     
    MindFull, Dec 10, 2020
    #7

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