Nothing in life is certain, and being diagnosed with a critical illness such as a heart attack or cancer is a reality that many individuals have to face. Having access to critical illness insurance cover provided by their employer helps to alleviate some of the financial worry in the event that they become too sick to work.
People are living and working longer. According to Office for National Statistics’ (ONS) figures, a quarter (24%) of people living in the UK will be aged 65 or older by 2042, up from 18% in 2016. Many will continue working beyond pension age, and employers are recognising that with an ageing workforce comes more risk that employees may become seriously ill while still employed.
Offering group critical illness cover to employees as part of their core benefits package supports them financially, avoiding the need to purchase a similar policy on personal terms, and brings them peace of mind.
What is group critical illness insurance?
Group critical illness insurance is a policy taken out by an employer to pay a tax-free lump sum to an employee if they are diagnosed with a defined critical illness, such as cancer, or they undergo a defined surgical procedure. The money can be used in any way the employee chooses, for example, supplementing sick pay, paying for treatment, nursing care and home modifications. It can also be used to pay off a mortgage.
The cover is available to organisations of all sizes, however, some policies may require a minimum number of employees to qualify. Employers can choose to extend group critical illness cover to certain categories of employees and the level of cover can be set differently for each group of employees in the scheme.
The kinds of illnesses covered are usually long term and very serious, including cancer, heart attack, stroke, kidney failure, major organ transplant, Parkinson’s disease and multiple sclerosis. A claim will be considered once an employee has been diagnosed with, or suffered from, one of the conditions covered by the policy and survived for a specified period. The money does not have to be paid back if the person becomes well again.
Many insurers provide group critical illness policies that include an employee’s children up to the age of 18, typically capped at £25,000. There are additional options for workers’ spouses and partners.
What are the cost implications?
As part of the group risk family, group critical illness is relatively inexpensive when compared to other employee benefits. A claim will be considered once the employee has survived for a specified period and been diagnosed with, or suffered, one of the conditions covered by the policy.
Are there any tax or legal issues for employers and employees?
Where cover is paid for by the employer, corporation tax relief is given on the premiums, the employer is liable for Class 1A national insurance contributions on the premiums. Premiums are treated as a P11D benefit for employees.
Group critical illness is increasingly being provided on a purely voluntary basis as part of a flexible benefits arrangement. In this case, the premiums the employee pays do not qualify for tax relief.
Access to group critical illness cover is very straightforward as group risk insurers are a little more relaxed about seeking medical evidence than consumer insurance providers because they are underwriting a pool of risk rather than individual members.
For group critical illness, generally, the process works as follows. For most people, no medical underwriting takes place. Because these benefits are often voluntary or selected by the employee, the cover operates with a pre-existing conditions exclusion. This means that someone with an existing medical condition will not be able to claim for this or a similar or related condition. However, while there is a pre-existing conditions exclusion in the contract, members will still be covered for all other conditions, for example, if someone has already had a heart attack, a claim for cancer would still be paid.
Current market trends
Group critical illness coverage continues to grow year on year according Swiss Re’s Group watch reports, particularly under voluntary or flexible benefits arrangements. Its 2023 report, published in April, found that during 2022, the number of in-force policies increased by 11.6%, benefits insured increased by 9.7% and the number of people insured increased by 5.6%.
The top cause of claim under group critical illness policies during 2022 was cancer (66%), followed by heart attack (9%), according to industry body Group Risk Development’s (Grid) Claims survey published in May 2023.
Who are the main providers in this market?
Legal and General, Aviva, AIG, Royal London and Vitality are the top five product providers measured by number of new critical illness sales, according to Swiss Re’s Group watch 2023.
