HLLQP - A&S 03 FC - Insurance to Protect Assets

What illness are covered under a three condition critical illness policy?

Three-condition contracts cover heart attack, stroke, and cancer.

Four-condition contracts, by contract, cover heart attack, stroke, cancer, and coronary heart bypass surgery.

what are the usual minimum and maximum ages for purchasing critical illness insurance?

The required age for applicants to qualify for a traditional CI policy is between 18 and 65 years old. Specialized children's plans are available, but they provide less coverage than a traditional CI policy.

Is the ability to cook considered an ADL under a long term care policy?

No. The ability to feed oneself is an activity of daily living, but cooking or preparing food is not.

What illness are covered under a "Big Four" critical illness policy?

1. Heart attack

2. Coronary heart bypass surgery

3. Stroke

4. Cancer

Memory Aids:

- There is a very "big" charitable organization called the "Heart and Stroke Foundation. " This will give you three of the Big Four covered illness (heart attack, stroke, and coronary heart bypass surgery).

- To remember that cancer is also covered under Big Four policies, keep in mind that some people refer to cancer as "the Big C." The Big C is in the Big Four.

Can LTC insurance be purchased as a rider on an existing life insurance policy?

Yes. LTC insurance can either be purchased as a stand-alone policy or added as a ruder to an existing life insurance policy.

LTC policies have their own separate and different underwriting criteria, even if such a policy is being added to a new or existing life insurance policy. It is possible to qualify for one insurance product (such as life insurance) but not qualify for LTC insurance.

Assuming a claim is is valid, what are the two models under which an insurer may pay long-term care benefits?

Indemnity model: The insurer pays the LTC provider directly. This is generally used with nursing home.

Reimbursement model: The insured pays the LTC costs and then applies for reimbursement under their LTC policy. This is generally used with home care.

Are benefits payable under a LTC policy if the insured is unable to perform two or more ADLs but refuses assistance?

No. It is important to note that LTC insurance indemnified the insured only for the actual costs that are incurred for the care that is provided.

For example, if the care is provided for free (by an adult child, perhaps), the insured would not have a valid claim with the insurer because there are no hard costs.

What typically happens to CI policy after the first claim?

Most policies have one-time payout, meaning that the policy expires once it pays a benefit. Some (very few) policies will continue and cover second claims, but for a reduced amount. For the purposes of the exam, assume that the policy expires after the first claim unless you are told otherwise.

What are the tax consequences of receiving a ROP on a LTC policy?

The return of premium (ROP) is really just a matter of the insurer refunding the insured's own money, and therefore is received tax-free.

If the insured receives benefits under a critical illness policy (CI), are there any restrictions as to how the funds may be utilized?

No. Once the policy pays out, the insured can do whatever he or she likes with the money.

If an individual is purchasing a LTC policy, what river should she consider adding if she is concerned about the rising costs of health care?

Cost of Living Adjustment (COLA). If the benefits under an LTC policy remained fixed while the costs of LTC rise, it would be increasingly difficult for the insured to make ends meet. To address this risk, most LTC policies offer a cost-of-living adjustment (COLA) rider for an added premium.

LTC insurance typically pays benefits if the insured is unable to do two or more activities of daily living (ADLs) without assistance. What are the ADLs?

To remember the ADLs, just think of the things that you do every single day, usually before you even leave the house in the morning. You always:

- Get out of bed (transfer)

- Control your bladder until you get to the bathroom (maintain continence)

- Use the toilet

- Take a shower or bath

- Get dressed

- Eat breakfast

Important Note: If failure to perform the ADLs is due to a lack of cognitive ability (the ability to think or reason), that is usually sufficient to qualify for benefits. For example, if the insured is physically able to do all of the above ADLs most of the time but occasionally does inexplicable things, such as urinating in a chest of drawers instead of a toilet, he or she may qualify for LTC benefits due to lack of cognitive ability.

What are some advantages of owning a LTC policy?

- The insured maintains her dignity knowing she will not need to rely on the government or be a burden on family members if she is unable to care for herself.

- The costs associated with LTC can be either partially or fully offset by the benefits received under an LTC policy.

- The insured can choose his own treatment or care as opposed to relying only on the options that he could otherwise afford without insurance.

What is the formula for determining the total amount of coverage offered over the life of an LTC plan?

Total Plan Maximum Daily Coverage = Daily Maximum x Specified Number of Days.

While the daily maximum can never be exceeded, some plans will extend the specified number of days to ensure that the insured receives the total plan maximum coverage.

Example: Norman's LTC plan covers a maximum of $400 per day for one year, which works out to total maximum coverage of $146,000. Norman's long-term care costs only $200 over day (half of the daily maximum). In the event that Norman continues to need care, the insurer has agreed to extend coverage to a maximum of two years so he can receive the full benefit of $146,000.

What are some of the standard exclusions on a critical illness (CI) policy?

1. Act of war or terrorism

2. Self-inflicted wounds, suicide, or attempted suicide

3. Normal pregnancy

4. Illness related to a criminal activity

5. Illness caused by the abuse of recreational drugs

6. Non-occupational HIV/AIDS

Note: HIV/AID contracted while on the job may be covered; e.g., HIV/AIDS resulting from a nurse getting picked with a dirty needle. .

How are premiums on an individual LTC policy treated from a tax perspective?

The end benefit on LTC policies is received tax-free; therefore, the premiums are not tax-deductible

Premiums may qualify as eligible expenses for the medical expense tax credit

Is it possible to buy critical illness insurance on the life of a young child?

Yes. Children's CI policies provide a limited amount of coverage.

These plans generally cover the same illness that comprehensive plans cover, plus a few others that are most commonly diagnosed in children. In most cases, a children's policy is convertible to an adult plan when the child reaches a certain age (usually 18)

Why is critical illness insurance (C insurance) often referred to as a :living benefit"?

CI insurance often referred to as a living benefit because it does not pay a death benefit. Instead, it pays a benefit if the insured suffers a covered illness and survives a certain period, such as 30 days.

LTC insurance policies usually provide "respite care." What is respite care?

If a family member is the primary caregiver, respite care is basically relief for that individual.

What types of care would a long-term care policy typically cover?

1. Home care

2. Respite Care

3. Assisted living

4. Nursing home/LTC facility

Under a critical illness policy, how many days long is the total window period before the insured can receive benefits?

Sixty days.

Illness diagnosed in the first 30 days are not covered, and illnesses diagnosed after that are subject to a survival period of 30 days:

30 days + 30 days = 50 days

With a critical illness policy, what special rule usually applies to cancer-related claims submitted shortly after the policy has been issued?

Some policies have a longer qualification period (such as 90 days) for cancer-related claims. This 90-at clause prevents someone who has a gut feelings that he or she is seriously ill from quickly putting CI insurance in place before seeking medical treatment.

A long-term care policy will provide benefits if the insured is unable to perform two or more activities of daily living ( known as the ADLs). One of those activities is maintaining continence. To what does this refer?

The ability to control one one's bladder.

Are there any restrictions as to how benefits received under a long-term care (LTC) policy are utilized?

Yes. LTC insurance covers either the cost of an LTC facility or the cost of having a caregiver come to your home and assist you, up to a daily or monthly maximum.

Many LTC policies offer a "ROP." What is a ROP?

Return of Premium (ROP).

Many LTC policies will refund a portion of the premiums if the insured dies without ever submitting a claim under the policy. The amount refunded varies from contract to contract, but is usually based to some extent on how long the policy was in force.

For example, if the insured dies without a claim after 10 years, the percentage refunded will be greater than if the policy had been in force for only one year.

Basic critical illness (CI) policies generally cover three or four "conditions'. What three conditions are covered under a three-condition policy?

A "three-condition"critical illness (CI) policy will cover:

1. Heart attack

2. Stroke

3. Cancer

Note: Big 4 Coverage (also called a four-condition policy) will also cover coronary heart bypass surgery.