SOA Exam ALTAM Sample Question 9

Study guide: Exam ALTAM

On 1/1/2009, a person purchased a 10-year hybrid long term care and life insurance product. The product has the following features:

(i) The product uses a reimbursement approach where the caregiver is reimbursed up to a maximum rate of 2000 per month when the insured requires assistance to perform 2 or more activities of daily living (ADLs), of the 6 commonly used ADLs.

(ii) The product has a 3 month waiting period and a 6 month off period.

(iii) The sum insured for the life insurance portion of the product is 100,000.

(iv) Premiums are payable at a continuous rate of 150 per month while the insured is active (able to perform at least 5 of 6 ADLs).

The insured's experience during the term of this policy was as follows:

From 1/1/2012 to 6/30/2012, the insured was only able to perform 4 ADLs, and required outpatient care costing 1000 per month.
From 3/31/2013 to 11/30/2013, the insured was only able to perform 3 ADLs, and required inpatient care costing 2500 per month.
For the remainder of the time from 1/1/2009 through 6/30/2018, the insured was able to perform at least 5 ADLs.
The insured died on 7/1/2018.

Part a (1 point)

List the six ADLs in common use for long term care products.

Part b (2 points)

Draw a sketch of a Markov model that could be used to model this hybrid insurance product.

Part c (2 points)

Calculate the amount of the death benefit payable upon the insured's death, assuming:

(i) The long term care and life insurance benefits are combined using the "return of premium" approach.

(ii) The long term care and life insurance benefits are combined using the "accelerated benefit" approach.

Part d (2 points)

Now suppose that instead of using a 6 month off period, the insurer uses a 12 month off period.

Calculate the change in total benefits paid as a result of this change, assuming: