Group Critical Illness Cover (CIC) is often a voluntary benefit, where the employee pays the annual premium, or it’s built into a flexible benefits package.
However, we are seeing more employers offering critical illness as part of their core benefits package, where the annual premium is paid by the company for either all or some of their staff, with benefit levels at either 2 or 3 times the salary, or a fixed-sum of £250k or £500k.
We expect this trend to continue as the workforce is ageing, with people living and working longer. The Office for National Statistics (ONS) projects that more than 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, especially those who can’t afford to retire. Companies are recognising that with an ageing workforce comes more risk that employees may become seriously ill whilst still employed.
In the future there is the risk that workforces are going to become unhealthier too with rising obesity, which is likely to lead to more incidences of cancer and heart disease, also having an impact on workers.
A Government initiative called Fit for Work said that obesity is one of the most significant health issues facing the UK population today. In the UK, 64% of adults are classed as being overweight or obese, costing the UK £47 billion every year – and this figure is continuing to rise.
The importance of supporting employees with serious and long-term health problems is therefore increasingly on the corporate agenda. With the ongoing pressures on the NHS, forward-thinking employers understand they will need to assume greater responsibility for the health of their workforce.
Employers have an invaluable role to play in ensuring they offer the right benefits that support health and wellbeing, and which will help employees recover and return to work, should they become seriously ill.
Consequently, we think that critical illness will become a far more important part of the benefits package for companies keen to attract and retain talent, especially as more employees recognise the value this could have for them.
Critical illness cover pays out a tax-free lump sum if an employee is diagnosed with an illness or medical condition specified in the terms of the policy. This money can be spent however they wish, such as paying medical bills, adapting a home or clearing debts such as a mortgage. It doesn’t have to be paid back if the person gets well again.
Whilst this is a Benefit in Kind, in the event that an employee needs to make a claim, the amount of Benefit in Kind is far outweighed by the actual benefit of having the policy in place – which could be hundreds of thousands of pounds.However, when it comes to critical illness cover it appears many employers don’t fully understand it and can often end up buying policies that are not suitable for their needs.
A survey last year by group risk trade body, GRiD found that only 27% of employers were able to identify group critical illness as ‘a policy taken out by an employer to provide a tax-free lump sum to an employee on the diagnosis of one of a defined list of serious conditions or on undergoing one of a defined list of surgical procedures'. Some employers incorrectly believe group critical illness will pay an income rather than a lump sum to employees with a serious illness, or will simply cover medical expenses.
The GRiD 2018 Claims Survey also showed that 84.4% of CIC claims were paid but of those that were declined, 49% of claims were not paid out due to the member having a condition which did not match the definition of the critical illness being claimed for.
48% of claims were turned down too because the claim was for a pre-existing or related condition (PECE), which was excluded from the policy. What this means is that if someone already had previously suffered from bowel cancer when they joined the plan, then no claims would be paid for any future occurrences of bowel cancer.
A claim, however, could still be made for an unrelated condition such as Multiple Sclerosis (MS). It’s therefore essential that before employers take out a group critical illness plan for their staff they use a specialist partner to advise them on the intricacies of this benefit. Misunderstanding the benefit can lead to employees not being covered when they thought they were.For employees having critical illness cover in place is a real comforter. Getting it wrong though can have major consequences for people at a very difficult time in their lives.
Our advice for employers is that prior to establishing the plan, care needs to be taken to ensure the right type of policy is recommended, that employers understand the different exclusions and, importantly, make sure employees understand that this will be a Benefit In Kind.
Critical illness cover can be complicated and expensive, but talking to a specialist adviser will ensure that employers put in place the cover that they expect … and which will pay out should an employee need it.
Adam Riley, Director of Global Development.