Critical Illness Cover
The Association of British Insurers (ABI) has a Best Practice guide for Critical Illness Cover (CIC) that encourages the use of common generic terms and model wordings for CIC, a common format for the way CIC is described and exclusions that meet appropriate minimum standards.
Model Critical Illness Definitions
The ABI provides a series of model critical illness definitions rather than stating which illnesses should be covered. Where an illness is not listed in the ABI list and is covered by an Income Protection Insurance provider, they must give a definition of the illness to a similar level of detail.
Features Of Critical Illness Cover Policies
Critical Illness Cover policies can be Guaranteed or Reviewable, pay cash lump sums and/or pay regular instalments. They can have a limited term or can be whole of life.
Some policies provide menu-style contracts enabling clients to choose from a list of conditions.
The onus is on the policyholder to prove a CIC claim and the cost of medical evidence will be at the policyholder’s expense.
CIC can be an added extra to term assurance, whole life or Private Medical Insurance policies.
Critical Illness Cover Policy Survival Period
The survival period of CIC policies are usually 14-30 days. However, there is no set survival period specified by the ABI Best Practice and survival periods are relevant to stand-alone policies rather than combined policies where the policy will pay out on the first event of death or critical illness.
Definitions For Total And Permanent Disability
There are five possible definitions for total and permanent disability and the definition for a claim is specified by the ABI:
- Unable to do one’s own occupation ever again.
- Unable to do a suited occupation ever again.
- Unable to do any occupation ever again.
- Unable to do 3 specified work tasks ever again. These are: walking, climbing, lifting, bending, getting in and out of a car, writing.
- Unable to look after one-self again. This is defined as failure to do 3 of: washing, getting dressed and undressed, feeding oneself, maintaining personal hygiene, getting between rooms, getting in and out of bed.
Underwriting Critical Illness Cover Policies
CIC underwriting uses morbidity risks relating to the illnesses covered so it is closer to Income Protection Insurance underwriting. Previous medical history is an important factor and premiums are based on morbidity statistics with expenses being less important and investment minimal.
Income Protection Insurance covers significantly more conditions than Critical Illness Cover – notably mental illness and debilitating conditions such as back pain.
Group CIC Cover
The premiums paid under a Group CIC are taxable on the employee as a benefit in kind and claims are tax free.
Real Life Cover
A development in CIC cover is called ‘real life cover’ which means that the policy offers payment for heart attacks, cancer and strokes but also permits incapacity payments to be made under an IPI for other illnesses if they result in incapacity.
A protection ‘fund’ is created from which payments are made in the event of claims and each payment reduces the fund until there is no payment on cancellation.