What is critical illness insurance?
Group critical illness insurance pays a tax-free lump sum if an employee is diagnosed with one of a number of stated serious health conditions and subsequently survives for a specified period typically 14 days. Payment is made regardless of how long it takes to recover, or whether the employee’s ability to work is affected.
The vast majority of claims involve cancer, stroke or heart attack, but most providers cover a dozen different conditions via a core option, and 25 to 35 via an enhanced option.
Pre-existing conditions are excluded, maximum cover limits are usually between £300,000 and £500,000 and employer-paid cover constitutes a benefit in kind.
Where can employers get more information?
Who are the main providers in the market?
Aviva, Canada Life, Ellipse, Friends Life, Legal and General, MetLife and Unum.
Offered mostly through flexible benefits schemes, critical illness insurance can pay tax-free lump sums if employees are diagnosed with certain serious health conditions, says Edmund Tirbutt
As one of the newest group health products, dating back to the early 1990s, critical illness cover is commonly perceived by employers as being the least necessary. According to Swiss Re’s 2011 Group watch survey, published in April, overall in-force premiums totalled only £50.3m during 2010, compared with £918.3 million for group life and £517.3 million for group income protection.
Critical illness cover does not offer rehabilitation services, and employers might be wary that employees who receive sizeable lump-sum payouts might become able to step off the treadmill. John Russell Smith, client director at Lorica Consulting, says: “Organisations do not have a fortune to spend on employee benefits generally, and advances in medical science mean employees can often claim without missing time from work. Even someone with a heart bypass can be back at work within a few weeks.”
Different tax treatments prevent critical illness cover from being offered as an add-on to life cover as in the individual market, and cost is also a big issue. Most cover is for two-to four-times salary and costs between 0.5% and 1.5% of payroll.
Insurers report that between half and three-quarters of their critical illness business is voluntary and that most of this is sold via flexible benefits schemes. Employer-paid business tends to involve small schemes where employers try to attract key employees with ultimate benefits packages.
The voluntary approach can appeal because the employer has selected a suitable provider, cover is highly competitive compared with the individual market and it is easy to access. Premiums can be paid via payroll deduction and no lengthy medical questionnaires need be completed.
Voluntary take-up rates are commonly between 5% and 20%, and sometimes even as high as 70%. The biggest influence on take-up is normally communication.
Glenn Laming, sales director for group protection at Legal and General, says: “The key is how employers promote the benefit. We have managed to double take-up within a month by holding webinars, but it is essential to find the right way to communicate with the workforce because some are more IT literate or financially savvy than others.”
Cover definitions are similar among different insurers and no single player has a clear edge on price. But added-value features can be seen as positive. For example, Unum covers modest levels of pre-existing conditions on its Select product and Canada Life provides the Best Doctors and Red Arc services, as well as a claims help-line
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