Income Protection Insurance (IP)

Income Protection Insurance (IP)

• IP insurance is a health and care contract designed for the customer's financial security.
• It provides a regular income if the policyholder becomes unable to work due to illness or injury.
• This form of insurance covers long-term care, critical illness, private medical needs, major medical costs, health cash plans, and group/individual needs.
• Items are denoted in bold are covered or partly covered

Introduction to Income Protection Insurance

• Chapters cover IP, critical illness (CI), long-term care (LTCI), private medical (PMI), major medical expenses (MME), & health cash plans.
• Chapter 1 outlines IP policies and associated accident/sickness policies.
• Chapters 2,3,4 describe Cl, LTCI, and PMI,
• Chapter 5 deals with group insurance versions of all policies

History of IP Insurance

• Income protection (IP) insurance, formerly known as permanent health insurance (PHI), has been around for over 100 years.
• The name changed to better reflect its coverage and has been widely adopted.
• PHI emphasized the insurance company's continuous payment obligation as long as claiming conditions were met, like sickness before retirement.
• The industry shifted away from the term PHI due to customer confusion, with some mistakenly believing it covered medical costs or provided lifetime benefits.
• Disability income insurance and long-term sickness insurance are other terms used in the USA and elsewhere.

Definition and Aims of Individual IP Insurance

• Individual IP Insurance is insurance offering regular payments during periods of incapacity.

• Incapacity, rather than disability, is used to describe being 'unable to work due to illness or injury'.

• IP benefits take the shape of temporary annuity payments which are discontinued once the insured recovers, dies, or the policy runs out,

• To increase the allure, a deferred span (up to a couple of years) is included, stipulating that the claimant be sick (incapacitated, before benefits begin.

• Benefits usually do not commence until after the waiting period and short-term sickness is often covered by the State or employer.

• With IP insurance, the ultimate goal is to replace a portion of the income lost when someone is unable to work because of accident or illness.

• Therefore benefits are provided in the form of regular income

• Conditions for the payment and cessation of benefits must be precisely defined within the policy documents because not all injuries or illnesses are covered (e.g., attempted suicide).

• Additionally, factors such as unemployment, reluctance to work, redundancy, or early retirement are typically excluded from the policy's coverage.

• To guard against scenarios like early retirement payments must align to guidelines and must be closely monitored by the insurere to ensure fairness.

• IP insurance policies are usually long-term and can accommodate multiple separate periods of benefit payout without terminating the policy

• To offer protection as a long-term policy, periodic benefit payouts can be used without canceling the the policy

• Premiums for IP insurance typically do not increase with age unlike private medical insurance.

• Premiums sometimes include a feature that adjusts for inflation

• Insurers have the ability to either increase premiums if claims experience is poor acros the portfolio or reduce premiums if the claims experience is good

• The policyholder's age and rating factors at the point of purchase determine the initial premium.

• Under an inflation-linked policy, both the benefit and premium increase at the specified rate of inflation, but with an annual cap.

• Guaranteed premiums cannot be changed, reviewable premiums can be changed on the review date for the entire portfolio of policies.

• To insurance risk as a shared responsibility insurance cannot act as pooling risk is maintained

• Increasing benefits each year with inflation protects policyholders from their wages eroding the level of long-term cover, relative to normal income.

• Employers may offer group IP insurance products to provide benefits to employees.

• Details about group IP products can be found in Chapter 5.

• In this section, the product cycle or process a product goes through over it's lifetime and how it relates to IP insurance can be found in Chapter 0

Product Design

• IP insurance products are complex
• Administration systems must manage the intricacies of IP insurance designs and record reason for claim, start date and cessation of claim related to claim

Pricing

• Insurance must employ specific actuarial practices that are charged in reflection of higher premium rates and weaker claims management,

Marketing and Sales

• Some customers may see IP insurance as a need, product selling can be actively brought; others require extensive external marketing

Underwriting and Claims Management

• These are more intricate in IP insurance than other lifecycles, thus giving results in fundamental claims experience

Probability of claim

• Insurance offers mainly assessment determined by gender and age
• Insurance depends mainly on normal occupation with illness and injury at given occupation, for example.

Solution

• To underwriting claim requires assessing insuring risk in the size and propability of the claim

Size of claim

• Sum is assured and know, often fixed to the insurance
• Amount is often influenced by numerous health conditions and varies by the insured person
• There are issues with managing and implementing systems to apply underwriting and policy

Actuarial difficulties with measuring morbidity risk

• Morbidity is measured using specific actuarial methodology
• Risk involves modelling likelihood of claim occuring, lengthof claim which needs estimating reliable data
• Unwise to utilise standard published rates of morbidity without adjestment because differnet insurers will vary and standards are outdated
• It is possible to lost investment through insuring policy and managing profitability, which gives results on trues experience not being known

Other information related to insurance experience and losing money on potential policy

• Due to the policy being available for a time and premiums, selling a large amount or reinsurance is an optional act
• Over time insurer uses suitable morbitity to calculate premium, as longetivity effects changes over over the term