Chapter 8: Morbidity Risks

Question 1

What’s the difference between Mortality and Morbidity?

Answer 1

Mortality is the number of deaths that occur at a given time in a given group (or from a cause)

Morbidity is the particular individual contracting a disease or disabling condition compared to other individuals of the same age or sex.

Question 2

What is the need for disability insurance?

Answer 2

The likelihood of disability and being unable to pay a mortgage is significantly higher then death.

Question 3

How does the base policy of disability insurance pay out?

Answer 3

When total disability occurs, a benefit is payable after a defined period of time for a defined length of time

Question 4

What are the three types of renewability provisions available of a DI policy?

Answer 4

1. Conditionally Renewable (non-traditional) - Flexibile for the insurance company and does not provide any premium or policy guarantees. Can be cancelled for any policy holder in a specific class.
2. Guaranteed Renewable - Cannot be canceled, be changed, or have additional restrictions applied if paid on time. Premiums can increase if prior claim history. Can be limited by beneit period or certain med impairments.
3. Non-cancleable - most strictly underwritten. If paid on time the company cannot increase the premium, change provisions, or cancel the policy.

Question 5

What are the three defined conditions that must be met for a benefit to be payable?

Answer 5

1. Own Occupation - Provides disability coverage for an individual who cannot perform their specific job. Needs to be followed by a doctor and can work another job while receiving benefits.
2. Regular Occupation - Same as own occuaption except that the insured is inelgibiel for disability benefits, if they are able to work in an occupation for which they have been educated, trained, or experienced in.
3. Any Occupation - least liberal. Based on the insureds ability to work in any reasonable occupation.

Question 6

What are loss of income policies?

Answer 6

Some policies measure total disability in terms of income loss. The amount paid is based on proportionate loss of income rather than the loss of ability to work. Loss of income must be directly attributable to injury or sickness an dthe client under care.

Question 7

What are the various forms of Business DI Products?

Answer 7

1. Key Person Insurance - Protects a business and replace lost profits in the event of employee loss.
2. Office Overhead Expense - Reimburse covered fixed business expenses during the disability of the insured owner. The benefit payable is based on the actual covered expnses incurred by the business. Example. Rent, property taxes, etc.
3. Disability Buy-Sell - Fund buy-sell agreements. If the business partners or shreholders suffer long-term disability. Legally enforceable contract between two or more partners.

Question 8

How is a disability insurance policy structured?

Answer 8

1. Benefit Payment - disability benefits are normally payable on a monthly basis for the duration of the disability and upon recovery.
2. Waiting period - designated the period of time one must be disabiled prior to benefits becoming payable
3. Benefit Period - Maximum period for which benefits will be paid during disability (2 years, 5 years - etc.)
4. Contractural Exclusion Riders - Not often applied - but if disability is caused by an act of accident of war, pregnancy, felony, transplant, cosemetic surgery.

Question 9

What are the significant Underwriting concerns for disability insurance?

Answer 9

1. Medical - More restrictive then life, many impairments that effect morbidity but not mortality.
2. Avocation - Some avocations like hazardous sports or scuba can warrant modifications.
3. Occupation - Are they eligible of disability, what type of product, coverage, rates. Different occupations have different class levels with 1 being constructin and 5 being lawyers
4. Financial - Insurable income is earned income (salary, comissions, fee’s) - you cannot count dividends or other drawings (advances)

Question 10

What is unearned income?

Answer 10

Income that would continue if the insured became disabled (stocks, bonds, trusts, dividends). If it represents a large amount of their total income it will be taken into consideration.

Question 11

What are the different forms of counteroffers that can be made during underwriting?

Answer 11

1. Premium ratings - to cover excess morbidity
2. Change of policy type - If one does not qualify for a specific type, it can be changed
3. Benefit Adjustments - Increasing waiting period, decreasing benefit periods.
4. Exclusions - Benefits will not be payable for a specified medication condition.

Question 12

What is the principle contra proferentum mean?

Answer 12

Applies in a lawsuit where there is a question as to the meaning of a term contained within an insurance contract. If the excluded language is unclear this is applied.

Question 13

What is the long term care insurance product?

Answer 13

Provides payment for ongoing care of an individual who is unable to live independently, typically manigested by the inability to perform two or more ADL’s.W

Question 14

What are the different long-term care products?

Answer 14

Base Policy - Guaranteed renewable (once inforce - the insurance comapny cannot make any adjustments to the policy). Some companies offer CI plans to their LTC. Some offer a linked asset where upon death you get the LTC money.

Facility Care Benefit - Payable if insured is confrimed in a LTC facility and receiving care based upon the loss of two or more ADL’s. (Palaliative or Custodial). Health or personal care servuces reqyured ib a KTC basis in a LTC facility.

Home Care Benefit - Payable if the insured is receiving home care based on the loss of two or more ADL’s. A program of services provided in the insureds home by skilled caregivers.

Question 15

How is an LTC policy paid?

Answer 15

1. Indemnity Method - Benefit is a set dollar amount and is not based on the specific services recived. Paid if eligible.
2. Expense incurred method - Benefits paid if the insured is eligible for benefits and if the claim is for eligible services.
3. Disability Method - once the insured meets the benefit eligiblity criteria, the full daily benefit is paid.

Question 16

Are their combination plans and contractural exclusion riders for LTC?

Answer 16

Yes.

Question 17

What do you look for when underwriting LTC?

Answer 17

1. Medical - ADL’s and IADL’s are significant. Cognitive testing enerally needed. Key is understanding functional impact of various common medical diagnoses and estimating likelihood of significant disability. Watch for working, living with a spouse, participating in hobbies.
2. Cognitive Status - Problems with attention, affect, memory, or other loss of intellectual capacity. Testing includes delayed word recall, enhanced mental skills test, Short portable mental status questionnatire.
3. Medical Requirements - Rely on APS
4. Fhx
5. Avocation and Occupation - Accidents resulting lin loss of ADL’s
6. Financial - Premiums should be affortable relative to income.

Question 18

What is critical illness insurance?

Answer 18

A product deisgned to help insured recovery financially from burdens that could present themselves while suffering from a critical illness. Can also be used for business purpose such as buy-sell. Once paid it terminates. Offered stand alone or as a rider.

Question 19

What are the different product offerings for CI?

Answer 19

Baes Polciy - Can be non-cancelable or guaranteed renewable. Premoums veary. Some can convert to permanent coverage. Won’t pay witihn 90 days of issue if cancer found. Can include exclusions as well and provide a definition of what is covered. Early intervention still allows for partial benefit payment.

Business Products - Key Employee insured amounts based on a multiple of the individuals compensation - should be CI on all key persons. Loan insurance also available.

Question 20

How do you underwrite CI coverage?

Answer 20

Special risk factors that increase possibility of CI must be considered. Risk of anti-selection is likely with a live benefit. APS’s are important. The focus is assessment of the risk that the insured will make.a claim for a covered condition, rather than the risk that death will occur.

Question 21

What are important factors for medically underwriting CI that are less than for life?

Answer 21

Family history, caardiovascular disease risk factors, and some conditions that increase cancer risk.

Question 22

What is an Accelerated Death Benefit?

Answer 22

An advance cash payment made by a life insurance company to an insured who has been determined to be terminally ill. Desinged to make the insureds life more comfortable during the final stages of illness. Usually pays more than a loan or surrender.