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Introduction
Whole Life Critical Illness (“CI”）Insurance mainly covers life threatening diseases. Many products cover also early stage, minor and juvenile diseases, and the coverage amount differs based on the severity of the illness. A fixed lump sum benefit is payable if the insured is diagnosed with a pre-defined illness. As some products cover up to the first major critical illness only and some cover up to multiple number of major critical illnesses, there are two product sub-categories – Single CI and Multiple CI. 10Life rates the products mainly based on the critical illness coverage under common scenarios, as well as the guaranteed returns after the premium paying period.
General Assumptions
- Issue age 35; non-smoker; male/ female
- US$150,000 basic sum assured with 20-year (or closest equivalent) premium payment term
1. CI Coverage Score
CI Coverage Score is a weighted score on Single CI coverage and Multiple CI coverage. A higher weight is put on Single CI since the first CI cases are most common. Multiple CI coverage is also considered as the survival and recovery rates of the first CI increase with medical advancement.
1.1 Single CI Coverage
The single CI coverage is based on the value and terms on Cancer, Heart and Stroke early stage and major disease benefits (1st time payout), as these diseases make up of over 90% of critical illness claims in Hong Kong:
- Early Stage Cancer (Carcinoma-in-situ)
- Early Stage Heart Disease Treatment (Angioplasty)
- Major Cancer
- Major Heart Disease
- Major Stroke
For each scenario, a benefit multiplier is calculated, which is the guaranteed minimum critical illness payout (average 50 years*) divided by the annual premium. *Some products may boost the coverage amount in a specified policy period (e.g. "early coverage booster for first 10 years"). 10Life takes the average payout across 50 years to calculate the benefit multiplier.
The Value Score is then calculated for each scenario based the product's benefit multiplier divided by a benchmark (the 80th percentile). The benchmark is reviewed and updated periodically to reflect product changes in the market.
The Terms Score is calculated based on the terms and provisions of each product. In the disease definitions and policy provisions, there may be terms and conditions that can be unfavourable to the policyholder during a claim. Based on consultation with medical specialists, deductions are made to the Terms Score based on the following terms:
- Vague exclusions on Cancer - "having borderline malignancy", "having low malignant potential"
- Vague exclusions on Cancer - "Non-life threatening cancers"
- Coronary Artery Disease not defined as part of Heart Disease (with only specified surgeries/ procedures defined)
- Strict definition on Angioplasty - requires evidence of significant ECG changes
- Exclusion on accidents, trauma or traumatic injury induced stroke
- Exclusion on migraine induced stroke
- Exclusion on vasculitis or infection induced stroke
- Deduction from major payout after early stage payout
The Single CI Coverage is weighted based on the approximate industry claim rates for male and female. The weightings are as follows:
Male | Female |
|
Cancer Value
| 60%
| 70%
|
Heart Disease Value
| 15%
| 10%
|
Stroke Value
| 15%
| 10%
|
Term Score
| 10%
| 10%
|
Single CI Coverage | 100%
| 100%
|
1.2 Multiple CI Coverage
The Multiple CI Coverage is based on the value and terms of the 2nd major disease payout after the 1st major disease payout and waiting period, including the following scenarios:
First Critical Illness Cancer | First Critical Illness Heart | First Critical Illness Stroke | First Critical Illness Other |
|
Second Critical Illness
| Cancer
| Cancer
| Cancer
| Cancer
|
Heart
| Heart
| Heart
| Heart
|
|
Stroke
| Stroke
| Stroke
| Stroke
|
|
Other
| Other
| Other
| Other
|
For each scenario, a benefit multiplier is calculated, which is the guaranteed minimum critical illness payout (average 50 years) divided by the annual premium.
The Value Score is then calculated for each scenario based the product's benefit multiplier divided by a benchmark (the 80th percentile). The benchmark is reviewed and updated periodically to reflect product changes in the market.
The Terms Score is calculated based on the terms and provisions of each product. In between each multiple CI claim, a waiting period is usually required. The longer the waiting period, the less favourable to the insured. Hence the Term Score is reduced based on the following:
- Long waiting period for new cancer (>1 Years)
- Long waiting period for recurrence cancer (>3Years)
- Long waiting period for continuous cancer (>3Years)
In addition, some products offer extra benefits during the waiting period for continuous cancer if the insured undergoes continuous cancer treatment. The Terms Score is reduced if no such benefit is provided.
Although Whole Life CI Insurance covers up to whole life, the multiple CI benefits usually have an age limit. The market benchmark is age 85, and some products cover up to age 100. Hence the Terms Score is reduced for products with a multiple CI coverage age limit lower than age 100, and further reduced if lower than age 85.
The Multiple CI score is weighted based on the approximate industry claim rates for male and female. The weightings are as follows:
Male
| Female
|
|
Cancer Value
| 60%
| 60%
|
Heart Disease Value
| 10%
| 10%
|
Stroke Value
| 10%
| 10%
|
Other Major CI Value
| 10%
| 10%
|
Terms Score
| 10%
| 10%
|
Multiple CI Coverage | 100%
| 100%
|
1.3 Single/ Multiple Whole Life CI Insurance Products
Whole Life Critical Illness Insurance products can be categorised as single CI insurance and multiple CI insurance.
For Single CI Insurance, the policy ends when the insured claims the first major CI benefit. Therefore, we should consider the score in 1.1 Single CI Coverage in comparison.
For Multiple CI Insurance, the policy continues after the first major CI benefit is claimed, until all the benefits are claimed. Therefore, we should consider both 1.1 Single CI Coverage and 1.2 Multiple CI Coverage in comparison.
Guarantee Return Score
Whole Life Critical Illness Insurance has savings elements with guaranteed and non-guaranteed returns. 10Life values guaranteed returns much more as the insurance company is obligated to pay.
The Guaranteed Return Score is based on the average Guaranteed Return Ratio (=Guaranteed Cash Value ÷ Total Premium Paid) at the 20th and 30th policy years respectively, compared to a corresponding benchmark (80th percentile).
Overall CI Score
The overall CI score is a weighted score with 80% on CI coverage and 20% on guaranteed returns. The weightings for Single CI products and Multiple CI products are as follows:
CI Coverage Score | Single CI Coverage | 55%
|
Multiple CI Coverage | 25%
|
|
Guaranteed Return Score | 20%
|
|
Overall CI Score | 100%
|
|
10Life scores are for reference only, and do not constitute any insurance purchase advice. You should seek independent advice before purchasing any insurance products. If you have any questions or suggestions about 10Life's scoring methodology, please email us at enquiries@10Life.com.
Updated on August 10, 2020
