ST1 - Chapter 3

[sincere student]

Immediate needs solutions under LTCI, states that premium is individually calculated based on the health status of the applicant. The policy holder can also select a death benefit.
Quote: 'The higher the level of death benefit selected, the less impact the policyholder's health status will have on the premium'
(given in Page 24 of chap 3)
Please Can anybody explain this quote

Thanks in advance

 

[psychopath 0_o]

The aim of LTCI is to provide an income/a benefit due to ill-health. The key risk cost for LTCI is the combination based on longevity and when the claim is triggered, i.e. inception.

If a policyholder decides to opt for a higher death benefit, if available, it means that they are likely to value the death benefit more than the LTC benefit. Since most LTCI policy is individually priced, the intention of the policyholder suggests to the underwriter that the policyholder thinks he/she cannot enjoy the LTCI benefit that long. This could be due to the illness he/she is aware of. While the death benefit may be made sooner than expected.

In this case, the health impact to the premium is less as the risk cost has shifted from a LTCI with death benefit rider to a WL with LTCI rider. So as you are more likely experience the death claim sooner, the health impact is not as big as the other way round.

Hope this makes sense.

 

[sincere student]

Now it's clear. Many thanks