What is Critical Illness?

The Group Critical Illness (CI) benefit is a relatively new addition to the Group benefits space. It pays out a lump sum benefit when an employee is diagnosed with one of a specific list of illnesses. These life altering conditions often come with financial burdens, such as extended time off work, full time care, or modifications to a car or home. As medicine has improved, the chances of surviving one of these conditions has never been better, but significant time is still needed to fully recover.

The Critical Illness benefit is designed to reduce the financial strain for employees, allowing them to focus on their recovery.

Critical Illness Components:

There are many components of the Critical Illness benefit. The following is not intended to be an exhaustive list, rather these are the most common components:

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Covered Conditions:

The number of conditions that are covered by the Group CI benefit. The list of covered CI conditions continues to increase, with carriers regularly adding more conditions. Note that 85%+ of all CI claims will fall under a very small subset of CI conditions, stroke, heart attack, cancer and coronary artery bypass surgery. Plans covering more conditions may appear to be offering greater protection, but these may come at the cost of more stringent pre-ex requirements or lower NEM‘s.

Note that some Group CI plans will cover dependants, either spouse, children or both. It is not uncommon for the list of conditions covered to differ for children.

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Lump Sum Amount:

The $ amount paid to the employee when they are diagnosed with a covered condition and all the other criteria are met. The lump sum payment is tax free and there are no restrictions on how it is used. It does not have to be spent on medical expenses, for example the employee could choose to spend it on a family vacation or use it to pay off existing debts.

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Termination Age:

The age at which the Critical Illness benefits cease to be paid. 70 is a commonly used termination age for CI, although higher termination ages may be available depending on the carrier. 

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Reduction Schedule:

Similar to the Group Life benefit, Group CI often has a reduction schedule, meaning that the amount of coverage provided decreases once an employee reaches a certain age. For example, the benefit may drop by 50% once the employee reaches age 65, meaning if the lump sum benefit is $50k, an employee over 65 that has an approved CI claim would receive $25k.

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Pre-existing Condition Guidelines:

Group CI pre-existing condition (pre-ex) guidelines are typically expressed in two numbers, separated by a /, for example 12/12. A 12/12 pre-ex means that any CI claim within 12 months of the effective date would not be paid if the employee had sought medical attention or had symptoms related to said condition at any point during the 12 months prior to the effective date. Pre-ex exists to prevent employees from seeking Group CI coverage when they know or suspect that they may have a critical illness. Longer pre-ex periods provide greater protection from anti-selection and will help lower the cost of the Group CI benefit.

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Partial Payment:

Some Critical Illness plans offer a reduced lump sum payout if an employee is diagnosed with a condition on the partial benefits list. These often include early diagnosis of cancer. Claiming a partial benefit does not typically effect your ability to make a full CI claim down the road if your are later diagnosed with a condition on the lump sum payment list.

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Multiple Payments:

Some Critical Illness plans will pay for more than one CI claim. Do be aware though that restrictions apply. You can’t claim the same condition twice, for example if you had a heart attack and later had a second heart attack (although see below regarding cancer). In addition to this, conditions are usually classified into categories or groups, and it is not possible to claim multiple conditions from the same category.

An example of condition categories

For example, if an employee was diagnosed with Condition A from the chart above and received a full payout, and was later diagnosed with Condition B, they would not be eligible to receive the second payout as both conditions are in the same category. However, if they were diagnosed with Condition Z, that is in a different category and the second claim would be eligible.

Note that the number of categories and which conditions are in them can differ between insurance carriers.

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Cancer Recurrence:

Some Critical Illness plans will pay for more than one cancer CI claim. This may be treated differently from the regular multiple payments detailed above. There are usually clear guidelines as to how and when multiple cancer claims would be eligible, for example, after 5 years treatment free.

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Benefits of Critical Illness

• You’re helping employees when they need it most: Being diagnosed with a serious condition is stressful enough, without having the added burden of day to day finances. Knowing that they have Group CI coverage can help provide peace of mind for all employees.
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• The benefit is extremely flexible: The employee can choose how best to spend the lump sum payment, based on their individual circumstances, making Group CI a very flexible way to provide support.

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Potential challenges

• Understand the restrictions: Different carriers will cover a variety of conditions for CI, some up to 40 different conditions. Note that the number of conditions is not as important as the restrictions around those conditions. More important than the number of conditions are the restrictions placed on CI coverage, for example:
  • Pre-ex requirements: See above. Longer pre-ex periods can make it harder to make a claim.
  • Survival period: How long the employee must survive before the lump sum payment is paid out.
  • Non-evidence maximums: How much coverage is available without medical evidence. More details on NEM’s can be found here. 
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• Moving groups with Critical Illness: Group CI benefits have a lot of behind the scenes rules and guidelines that can vary significantly from carrier to carrier. Be especially aware when moving a group with CI from one carrier to another, as employees that may have previously been eligible for coverage may no longer be covered due to the new carriers restrictions, condition categories etc. Be sure to check what (if anything) will be covered by grandfathering. For example, what is the impact on an employee halfway through their pre-ex period when the group transfers?