Group critical illness insurance – the pros and cons

It’s a type of insurance that pays out a lump sum if your employee is diagnosed with a critical illness or has to have surgery defined under the policy. They must survive for a specified period after meeting the policy definition – usually between 10 and 28 days. Some policies will pay out once your employee has a diagnosis, while others don’t pay out until the condition reaches a certain level or severity or your employee has had named treatments set out in the policy. 

You will pay a monthly premium for the policy. This is not a savings or investment product and will only pay out when an employee makes a successful claim. Usually, your employee will get their payment in one lump sum. 

• Your employees get financial support at a difficult time, letting them concentrate on their health instead of their financial situation.
  
• It can boost employee morale and loyalty by helping them feel valued by their employer.
  
• It’s an attractive recruitment and retention tool, helping you to stand out among your competitors.
  
• Group policies are often more affordable than individual ones, so you’re giving your employees extra protection in a cost-effective way.
  
• Insurers often use simplified underwriting for group protection policies, meaning your employees don’t have to undergo medical exams to have the cover.
  
• The premiums you pay will usually be tax-deductible and the payout your employee gets is normally tax free.
  
• Protection policies like this often come with an added range of wellbeing support and services your employees can use to improve their physical, mental and financial wellbeing. 

• The policy only covers specific illnesses – the number will vary by provider.
  
  
• Your employee will get a lump sum payout – there’s no ongoing financial support like they would get with income protection.
  
  
• There’s a cost to your business if you choose to fully fund the policy. And, the premium you pay will be treated as a P11D benefit for your employees.
  
  
• Your employees may misunderstand the extent of the cover and what is and what isn’t covered.
  
  
• There may be tax implications, depending on how you choose to structure the benefit.

A critical illness policy covers certain illnesses and conditions, which are outlined in the policy terms and conditions. It will vary for each provider, but usually covers these conditions:

• Cancer (typically of a certain severity)
• Heart attack
• Stroke
• Major organ transplant
• Multiple sclerosis
• Kidney failure
• Coronary artery bypass

Every insurer will have its own definition for each condition covered. Some of those conditions will have a specific level of severity that your employee must meet before they get a payout.

The Association of British Insurers (ABI) has a list of model definitions with minimum expected standards as a benchmark for what you can expect from a group critical illness policy.

Every provider will also have a number of exclusions and limitations attached to their policy. This is usually things like not covering pre-existing conditions, less severe forms of illness or conditions not listed in the policy.

As you’d expect, costs will vary depending on what precisely the policy covers.

A number of factors will affect how much your premium will be, including the ages of your employees, the benefit amount, and the size of the group you’re insuring.

You will also need to decide if you want to fund the scheme entirely yourself or whether to ask you employees to contribute towards the cost by paying part of their premium. If you are on a budget, a voluntary payment from employees will help reduce the cost of your scheme. 

If you’re considering adding group critical illness cover to your benefits package, it’s worth bearing a few things in mind: 

• You’ll need to tell your employees about their new benefit. Your chosen provider may be able to help you do this, with emails and posters and other communications you can use to help spread the word. Some providers may even send out the emails themselves. 
• It’s important to review the terms of your policy regularly to make sure it continues to meet the needs of your employees and your business. 
• Take a look at what else you may get alongside the policy itself. Providers may offer added value benefits, such as wellbeing services, employee assistance programmes, and mental health training for your managers. 

Group critical illness cover can be a valuable addition to your benefits package. It can help your employees focus on their health instead of worrying about their finances if they are diagnosed with a covered illness or need surgery for a covered condition. But it does have some limitations.

It’s worth talking to an adviser, who can help you weigh up the pros and cons and make an informed decision. They will also be able to help you assess the needs of your workforce and give you tailored advice on the best route forward for your business. An adviser will charge you for their time and advice. If you don’t have an adviser, you can find one at MoneyHelper.org.uk.