1 : 5 - Critical lllness Insurance Flashcards
What is Critical Illness Cover (CIC)?
The concept is to pay out a lump sum on the diagnosis of one of a number of specified critical illnesses (AKA dread diseases).
What are examples of the illnesses covered by life offices?
The majority of claims are made from the assured contracting cancer or suffering a heart attack or stroke
Who has produced a statement of best practice for CIC which sets out general principles, generic terminology and a common format for the way CIC is described to potential buyers?
Association of British Insurers (ABI)
What is the survival period?
The life assured has to survive after diagnosis by, say, 14, 28 or 30 days before the claim is paid.
How are CICs structured?
Most CIC policies are now reviewable policies.
This means that premiums are only guaranteed for a fixed period of the overall term, say for the first five years.
How has the CIC business changed over time?
Due to the ever changing advancements in the medical profession, this is an important safety net for life offices.
With diagnosis techniques becoming progressively more advanced, the likelihood that an illness covered under the policy will be diagnosed earlier than anticipated is growing, leading to earlier payouts for insurers.
How are CICs assessed?
It is important to note that policy reviews do not look at the health of the individual life assured, but at general medical advancements.
What is ‘buy-back’ cover?
This enables someone who has been diagnosed with a critical illness to have a limited level of post-claim cover when they would ordinarily be considered to be uninsurable.
How are CICs treated for tax?
A CIC payment is not a chargeable event for tax purposes and so there is no income tax liability.
No transfer of value is involved either and so there will be no IHT liability.
What can CIC be used for?
To protect a debt, particularly a mortgage: this could be either on a level or decreasing basis.
As ‘retirement protection’, based on the concept that suffering a critical illness could seriously impair an individual’s chances of building up a sufficient retirement fund.
As business protection insurance.
EG:
Shannon is concerned that in the event of a critical illness she would require a lump sum to help her repay her mortgage and fund her lifestyle. Having worked with her financial planner she takes out a critical illness policy for a sum assured of £500,000 over a term of 20 years (to her expected retirement age).
Should she be diagnosed with a serious illness she would use the capital from a successful claim to clear her mortgage of £50,000, to provide capital should it be required to make changes to her home to help make it more comfortable to live in throughout the illness. She would then plan on investing the remaining capital to provide her with an income to support her lifestyle.
What is Group critical illness insurance?
CIC can be taken on the life of another by a business/ company; this is normally known as key person insurance and/or group insurance.
The principles are the same in that the critical illness plan will pay out a tax-free lump sum on the diagnosis of a specified critical illness after a defined survival period.
For an employer, what does group CIC provide?
- Benefits package – this can be an attractive addition to someone’s salary, aiding in recruiting and retaining high-calibre and key members of staff.
- Affordable employee benefit – most life companies will offer the cover at a discounted rate.
- Financial support – provides a means by which a company can provide financial support to its key employees. Also, this can ease the pressure on a company regarding how it can maintain long-term financial assistance to its employees.
For an employee, what does group CIC provide?
- financial protection – providing a lump sum of money at a time when it is needed most
- peace of mind – easing certain stresses while they are going through treatment
- feeling of being valued – such a benefit paid by the company makes the employee feel what they do is appreciated, earning their loyalty.
What types of companies use group CIC?
Group critical illness insurance is normally aimed at larger organisations, giving them the ability to offer additional attractive benefits.
The majority of insurance companies offering group critical illness insurance will want the company to have at least 50 employees. (This is because they offer the CIC at competitive discounted rates and in most cases with more generous underwriting)
