After a male partner had suffered a heart attack and a female partner had received the all-clear following treatment for breast cancer, the client, a city-based legal practice, decided to implement a group critical illness (CI) scheme for all 137 staff, including 15 partners.
Reasons for introducing group CI were discussed with the client. The policy would provide financial protection in the event of the diagnosis of a critical illness, while also providing peace of mind at a time of great stress. The benefit would assist the company in attracting and retaining quality staff in a highly competitive industry. And group CI would complete a good benefits package and provide upper quartile benefits against those a competitor would provide.
The scheme design includes:
l Scheme eligibility All equity and salaried partners aged 16-60 years are immediately eligible for the scheme on being appointed a partner. All associates and staff aged 16-60 are eligible upon completion of probation period l Payment of benefits Benefits are payable if the claimant survives a 30-day deferment period after critical illness is diagnosed l Maximum benefit Equity partners and salaried partners receive the lesser of two x earnings or £150,000. Associates and staff receive two x basic salary l Comprehensive range of conditions covered l Pre-existing conditions exclusion Terms are provided subject to a pre-existing conditions clause. However, the member may receive the full sum assured more than once. For example, a member receiving benefit after a heart attack can make a further claim, if they have remained within the scheme, if diagnosed with cancer.
No benefit will be payable for any condition which the member has suffered from prior to inception of cover, or for which the member has received benefit. For the purpose of this exclusion, suffering or undergoing a heart attack, coronary artery bypass surgery, heart transplant or stroke, is considered to be the same. For example, if a heart attack has been suffered prior to entry, no benefit is payable for any future heart attack, coronary artery bypass surgery, heart transplant or stroke.
No benefit will be payable for any CI occurring within two years of a member joining the originally insured scheme which, in the opinion of the medical adviser nominated by the selected insurer, has resulted directly or indirectly from any condition for which the member has received treatment, suffered symptoms, asked advice, or was aware existed at, or prior to, commencement of cover.
l Temporary absence cover Temporary absence for any cause is allowed for up to 12 months.
l Long term absence cover In the event of absence due to illness or injury, cover continues until normal retirement age.
l Children’s cover Optional.
l Accounting procedure Annually, based upon sum assured.
l Issues The scheme’s free cover limit is set at £150,000. This cap of £150,000 for partners removes the need for underwriting. Pre-existing conditions exclusion again provides cover without the need for underwriting. This also provides cover for the two partners who have previously suffered critical illnesses. For them, the likely result of any underwriting would be that they were declined cover, making it virtually impossible to obtain cover on an individual basis.
The scheme administration is minimal – a vital requirement for any busy practice.
The selection of an appropriate insurer was based on:
l Competitive premium rates l Comprehensive contractual terms and conditions including Association of Independent Financial Advisers compliant definitions l Proven efficient and sympathetic claims handling l Current group risk portfolio and market experience l Efficient ongoing administration.
Other important areas for consideration were the provision of communication material and a review of contracts of employment.
A comprehensive scheme was then designed and installed. The cost equates to 0.190 per cent of the sum assured. The annual premium is £21,375, based upon a total sum assured of: partners £2,200,000 plus staff £9,000,000 = £11,250,000.
The average cost per employee a year, £140.63, is a small price compared to individual cover.
The tax treatment of the premiums and benefits for the group CI contract are based on Taylor’s current understanding of Inland Revenue law and practice and subject to change without notification (errors and omissions excepted).
l Stuart Gray is the director of Taylor’s Independent Financial Advisers