CII R05 Critical Illness Cover 2 — Questions and Answers
Question 1: Under CII R05, what is meant by a 'total and permanent disability' (TPD) definition within a critical illness policy?
- The inability to perform any paid work whatsoever for a minimum of 6 months
- A definition that covers the inability to perform one's own occupation or any occupation, depending on the policy wording, on a permanent basis (Correct answer)
- A temporary inability to work due to an accident
- A disability that must be reassessed every 12 months by the insurer
Correct answer: A definition that covers the inability to perform one's own occupation or any occupation, depending on the policy wording, on a permanent basis
TPD cover within critical illness policies can use either 'own occupation' or 'any occupation' definitions. Own occupation TPD means the claimant cannot perform their specific job, while any occupation means they cannot perform any job suited to their training and experience. The disability must be permanent, and the definition used significantly affects the likelihood of a successful claim.
Question 2: A client is considering critical illness cover and asks about 'additional payment' conditions. What are these?
- Conditions that trigger a full second payout equal to the original sum assured
- Less severe conditions that trigger a smaller partial payment, separate from the main sum assured (Correct answer)
- Conditions that only apply after the policy has been in force for 10 years
- Conditions that are only payable if the policyholder is over age 60
Correct answer: Less severe conditions that trigger a smaller partial payment, separate from the main sum assured
Additional payment conditions (sometimes called 'additional' or 'severity-based' conditions) are less severe illnesses that trigger a smaller, partial payment — typically a percentage of the sum assured or a fixed amount. Examples include less advanced cancer or a less severe heart condition. These payments usually do not reduce the main sum assured.
Question 3: Which of the following is a key advantage of a standalone critical illness plan over an accelerated plan?
- Standalone plans are always cheaper
- A standalone plan preserves the full death benefit even after a critical illness claim (Correct answer)
- Standalone plans cover more conditions
- Standalone plans do not require a survival period
Correct answer: A standalone plan preserves the full death benefit even after a critical illness claim
The key advantage of standalone critical illness cover is that claiming for a critical illness does not reduce the death benefit. The life cover and critical illness cover operate independently. Under an accelerated plan, a critical illness claim reduces or eliminates the death benefit, potentially leaving dependants without life cover.
Question 4: A critical illness policy may include a 'waiver of premium' benefit. What does this provide?
- A refund of all premiums paid if no claim is made
- Continued policy cover without the need to pay premiums if the policyholder is unable to work due to incapacity (Correct answer)
- An automatic increase in the sum assured each year
- A reduction in premiums after the policy has been in force for five years
Correct answer: Continued policy cover without the need to pay premiums if the policyholder is unable to work due to incapacity
Waiver of premium is an optional benefit that ensures the policy remains in force without the policyholder having to pay premiums during a period of incapacity. Typically, there is a deferred period (e.g., 13 or 26 weeks) before the waiver begins, and the policyholder must meet the definition of incapacity specified in the policy.
Question 5: In the context of critical illness cover, what does 'indexation' mean?
- The sum assured is adjusted downwards each year to reflect deflation
- The sum assured and premiums increase annually, typically in line with RPI or a fixed percentage, to maintain the real value of cover (Correct answer)
- The policy is automatically cancelled if premiums are not paid by the indexed date
- The policyholder receives an annual index of all conditions covered
Correct answer: The sum assured and premiums increase annually, typically in line with RPI or a fixed percentage, to maintain the real value of cover
Indexation (also called 'index-linking') automatically increases the sum assured annually, usually in line with the Retail Prices Index (RPI) or a fixed percentage (e.g., 3% or 5%). Premiums also increase to reflect the higher cover. This protects against inflation eroding the real value of the benefit over the policy term.
Question 6: A policyholder diagnosed with early-stage prostate cancer makes a claim on their critical illness policy. The insurer declines the claim. What is the most likely reason?
- Prostate cancer is never covered under any critical illness policy
- The cancer may not meet the policy's definition, which typically excludes early-stage or low-grade cancers (Correct answer)
- The policyholder did not wait 12 months after taking out the policy
- Critical illness policies only cover female cancers
Correct answer: The cancer may not meet the policy's definition, which typically excludes early-stage or low-grade cancers
Critical illness policies typically exclude early-stage, low-grade, or non-invasive cancers from the full critical illness definition. Many prostate cancers diagnosed at an early stage (such as Gleason score 6 or below, or TNM classification T1a/T1b) may fall below the threshold for a full critical illness claim, though they might qualify for an additional payment benefit.
CII R05 Critical Illness Cover 2
Under CII R05, what is meant by a 'total and permanent disability' (TPD) definition within a critical illness policy?