Buyer’s guide to group critical illness insurance

Untidy pile of brown parcels with label

The facts

What is group critical illness insurance?

Group critical illness insurance pays a tax-free lump sum to an employee who is diagnosed with a serious condition, such as heart attack, cancer or stroke, or is undergoing a specified surgical procedure, such as major organ transplant or open-heart surgery.

The benefit is paid once the employee has survived for a set period, typically 14, 28 or 30 days, and is payable whether or not they are able to return to work.

Where can employers get more information?

Group Risk Development represents and promotes the group risk industry. Its website, www.grouprisk.org.uk, includes information about critical illness insurance, as well as intermediary and insurance contacts.

Who are the main providers?

Aviva, Canada Life, Ellipse, Generali, Hanover Re, Legal and General, MetLife and Unum.

Group critical illness insurance provides a tax-free lump sum payment to an employee diagnosed with a serious, usually life-threatening illness. A payout is triggered when the employee survives the initial event for a specific period, usually 14, 28 or 30 days, and is designed to help them make necessary adjustments to their lifestyle, such as repaying a mortgage, or to fund medical treatment. Payment is made regardless of an employee’s recovery period and irrespective of whether they can continue to work.

Cover is generally provided as a multiple of salary or as a flat benefit. Because it is not intended as a lottery-style benefit, modest sums assured between £25,000 and £50,000 are popular, especially where employees have the option to flex up the benefit and increase cover levels. The average claim size was £61,005 in 2014, according to industry body Group Risk Development (Grid).

Conditions covered

The medical conditions covered are determined by the critical illness insurer, which usually offers two levels of cover. Base cover will include about a dozen of the most serious conditions, such as heart attack, kidney failure and cancer, while additional cover can add in a further 20 or more conditions, including heart valve repair, loss of speech and third-degree burns.

The main cause of claim for critical illness insurance in 2014 was cancer, which accounted for 68% of claims, according to Grid. The next most common condition was heart attack.

Cover for dependants

Employees’ partners and children can also be included in critical illness cover, with child benefit usually capped at £25,000. Most insurers will not require any medical underwriting as long as an employee’s sum assured does not exceed £500,000. However, any pre-existing or related conditions will not be covered.

Added-value benefits are common in critical illness insurance policies. These include employee assistance programmes and access to the second-opinion service Best Doctors, for example.

It is relatively easy to implement critical illness insurance, either on an employer-funded or voluntary basis or within flexible benefits plans. Insurers will stipulate minimum scheme sizes, which depend on the way cover is funded, but they generally start with about five employees.

Critical illness insurance is popular among employers that offer it through a flex scheme, so insurers are improving products to allow greater choice for employees, for example, to select larger benefit amounts or different cover levels.

Whether critical illness insurance is implemented on an employer-paid or voluntary basis, employers should take care to explain the cover to employees, particularly insurers’ definitions of when they do and do not pay out. For example, although policies cover conditions such as cancer, this will not necessarily include minor forms of the disease that are not considered life-threatening.

Statistics

  • 23% of working adults would not be able to cope financially for more than a couple of months if they were unable to work. (Source: Scottish Widows, November 2015)
  • 42% of working adults affected by critical illness have to make lifestyle changes in order to cope with the financial impact. (Source: Scottish Widows, November 2015)
  • 8% of working adults have a critical illness policy in place. (Source: Scottish Widows, November 2015)