In the US, chronic illness insurance riders are emerging as an alternative to long-term care insurance riders. Could such coverage find a viable market in the UK, asks Mark Johnson.
If you were a US-based insurance sales agent, you would most likely have received an email from the US insurer Prudential Financial that asked: ‘Can your clients afford a chronic illness?’
This is the $64,000 question for today’s ageing population. For nearly two decades, long-term care has been the living benefit product available for the income needs of people in the US with health problems linked with ageing.
Standalone product sales, however, have contracted because of pricing challenges, low lapse rates, and high claims experience. Although the need for this sort of living benefit has not abated, many life insurers have opted to either introduce long-term care (LTC) riders, a cut-down version sold as a rider to other plans, or to exit the LTC market altogether.
Over the past few years, a new type of living benefit product has been emerging in the US: chronic illness insurance riders for life insurance policies. This is a life acceleration product: that is, a type of coverage that accelerates a life insurance policy’s death benefit for specific chronic illness needs.
So what is chronic illness insurance cover, and how does it differ from the cover in critical illness policies and riders commonly found in Europe and Asia, and from the LTC insurance riders commonly found in the US?
Critical illness insurance cover is intended for a working-age population, and triggers in response to conditions such as cancer, heart attacks or strokes. Policies can be structured to cover for dozens of impairments, several levels of severity, and even to permit multiple claims should a policyholder be subject to more than one critical illness during the course of their life.
LTC insurance cover in the US is for older buyers. It is fully underwritten, and used in response to the need for home healthcare or nursing home care if the insured is, for any reason, unable to perform a specific number (depending on the policy) of the six main Activities of Daily Living (ADLs): eating, toileting, transferring, bathing, dressing, and continence, or if there is a cognitive impairment.
Chronic illness has some similarities to LTC insurance in that it is also intended for an older market – the target ages are 60 to 80 – but it is considered to be a separate class of cover from LTC.
Sellers of the product in the US are specifically prevented by regulation from terming it ‘long-term care’ in marketing materials. The cover contains triggers to enable claims payments should a claimant experience loss of ability to perform a specific number of ADLs (usually two), and if there is a cognitive impairment.
Triggering conditions can include AIDS, end-stage renal failure, permanent neurological deficit resulting from cerebral vascular accident, and others. In addition, chronic illness riders have a unique trigger requirement: a physician must certify that the illness is likely to last for the rest of the insured’s life, which is something the other types of coverage do not require.
