Buyer’s guide to critical illness cover

Key facts

What is critical illness insurance?

It provides a lump sum paid out by the insurer to an employee upon diagnosis of a critical illness, as defined within the insurance policy.

Where can employers get more information?

The Group Risk Development website has more information on group critical illness for employers.
The Association of British Insurers has key documents on critical illness online.

Who are the main providers?

Aviva, Bupa, Canada Life, Ellipse, Friends Provident, Legal and General, Unum.

Group critical illness insurance is being recognised by both employers and employees as an increasingly important component of a benefits package, explains Tynan Barton

Awareness of critical illness insurance is growing among the UK population, and so too is its importance as an employee benefit. Group insurance research published by Canada Life last month found that almost 70% of employees had made no financial provision for costs incurred in the event of a critical illness, but 65% were aware of this type of insurance policy and its benefits.

Group critical illness cover pays a tax-free lump sum to an employee on diagnosis of a critical illness from either a defined list of conditions or a defined list of surgical procedures. Katherine Moxham of industry body Group Risk Development (Grid) says: “Typically, there is a choice of base, or core, cover which insures against some of the most serious critical illnesses, and core plus additional, which adds a number of other conditions as well.”

The number of illnesses included on a core list and additional cover varies from provider to provider. For example, one might insure against seven conditions, while another’s policy will cover 13. All core lists will include heart attack, cancer and stroke, as well as conditions such as Alzheimer’s disease, kidney failure and multiple sclerosis.

Additional cover can insure as many as 30 further critical illnesses, which can include benign brain tumours, chronic lung disease and permanent total disability.

Helene Gullen, commercial marketing manager at Unum, says that although the number of illnesses covered can differ from policy to policy, the definitions will be the same. “There are standard definitions of some of these illnesses, set by the Association of British Insurers, which all insurers will use.”

When benefit is paid

The benefit is paid after an employee survives for a specified period, which again varies among providers, but can be 14, 28 or 30 days. For an employee suffering permanent total disability, the survival period is extended to six months, because it involves a longer period of assessment. The provider will normally require medical evidence of the employee’s condition. Peter Fenner, communications manager at Ellipse, says: “We would look for professional medical confirmation that the member was suffering that condition and check that the definition, as described in our policy, is being met.”

Calculation of the lump sum is at an employer’s request and is usually a multiple of salary, or a stated amount for all employees, up to a maximum of £500,000.

Gullen says the lump sum can be used in various ways. “People might use it to make an adaptation at home if, for example, they can no longer use the stairs. Or it might be used to pay for treatment if they have not got private medical insurance, or they have but it does not pay for cancer drugs.”

The employer will receive corporation tax relief on the premiums and is liable for Class 1A national insurance contributions. The premiums are treated as a P11D benefit for staff. The cost to employers of providing the scheme can vary, but typically could be £2 to £3 for every £1,000 of cover per member. The cost of cover increases with age.

If employers rebroke or choose to switch provider, they will have to make sure employees with pre-existing conditions have continuous cover. Moxham says: “Where cover is switched, someone could fall through the cracks. It is important to understand what is and is not covered.”

A growing trend is to offer group critical illness cover within a flexible benefits scheme. Fenner says: “This has been a popular option where the member can either pay for it themselves or opt into it as part of their flexible benefits spend.”

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