Group Critical Illness: The forgotten benefit
We have already explored Group Life Assurance and Group Income Protection, but what about the often-neglected Group Critical Illness as a core benefit?
This benefit is sometimes confused with Group Income Protection as it often (but not always!) pays out on a serious illness. The reality though is somewhat different when it comes to looking whether the employer sees a return on their investment when comparing it to Group Income Protection.
In a perfect world, employers would have both policies, but if you had to, which should you choose?
The simple answer here, is Income Protection in nearly every case!
Why?
The scope on income protection is much wider as it focuses on an individual’s ability to do their own occupation. Apart from routine pregnancy, there are normally no medical exclusions. Critical illness, on the other hand will only pay-out on the diagnosis of specific ailments which may or may not impact on a person’s ability to work.
With income protection, there is a focus on managing absence and encouraging a return to work which has clear benefits to the employer, whilst on the other hand, the critical illness pays out a cash lump sum, which may mean the employee delays a return to work with significant implications for the employer.
The critical illness policy excludes pre-existing conditions, which can mean when two employees submit similar claims, and one maybe paid but the other may not be. This presents a moral dilemma for the employer when explaining that! Compare that to the income protection where all conditions, whether pre-existing or new, can be considered up to the free cover limit.
So yes, offer critical illness as part of a flexible benefits arrangement where people can make their own decision whether they feel the benefit is worthwhile, but as a core benefit, it runs the risk of creating division in the workplace when employees misunderstand what is being provided.
One last point to consider!
The Critical Illness is a P11D benefit which can add more work to the payroll team and lead to some employees objecting to the deduction!
The clear differences between these plans highlights the need for good quality consultative advice before deciding on an employee benefits strategy. All the benefits below are linked and getting one wrong can have a severe impact on the others
Death in Service: get it wrong and pay thousands in unnecessary tax on the pension pot even if you are still alive!
Critical Illness: unlike income protection does not qualify as earned income and cannot be used to fund a pension if no other income exists.
Income Protection: if not set up properly can mean the employer has to fund the pension scheme of an absent employee!
Workplace Pension Scheme: for younger people who have not built up a significant pot, incapacity will mean that they cannot fund for retirement. Employers should consider the income protection as part of their pension planning.
For clear, sensible advice contact Prosperis on 01423 223640 or email us below.
