Critical illness insurance for employees: How does it work?

Critical illness insurance for employees, also known as group critical illness cover, is an insurance policy businesses can purchase to cover their employees against critical illnesses.

Terry Fromant
Head of Group Risk
Critical illness insurance for employees: How does it work?
Terry Fromant
Head of Group Risk
Group Risk
October 16, 2023
Read time: 

What is critical illness insurance for employees?

Critical illness insurance is an employee benefit that aims to support employees and their families financially during a difficult time in their lives. If an employee covered for critical illness insurance is diagnosed with a critical illness included in the policy terms, they’ll receive a tax-free cash lump sum payout. 

Employees may have to pay tax on the premium amount if they’re covered as it’s considered to be a benefit in kind, and depending on the payment options chosen by the employer, they may also need to contribute towards the cost of the policy. Please get in touch to compare available policies and discuss your options.

Key points: Critical illness insurance for employees

Every group critical illness policy is unique, and companies have several options to customise the cover to their needs. We’ve highlighted some of the key information around critical illness insurance to help you understand the ins and outs of the policy.

Cover level

The lump sum benefit can either be a multiple of an employee’s salary (maximum 5x or £500,000 whichever is the lesser) or a fixed amount (up to £500,000). Depending on the scheme design, the cover will cover employees up to their 70th birthday.

There are 2 levels of conditions which can be selected:

  1. Basic - Employees are covered for a set amount of critical illnesses that may include heart attacks, stroke, cancer, dementia and more.
  1. Basic + Enhanced - Employees are covered for additional critical illnesses that may not be available on the basic cover, such as brain tumors, terminal illnesses, rheumatoid arthritis and more.

Payment options

Depending on how many employees you have, you may have several ways your company can pay for the policy. An example of your options include:

  1. Employer-funded - The employer covers the cost of the policy.
  1. Joint funded - The employer and employees contribute towards the cost. 
  1. Employee-funded - Employees pay for the policy, and the employer collects the funds for the provider.

Who’s covered?

Depending on the type of policy and the number of employees, an employee may have the options to opt out if company funded, or opt in on a voluntary basis. Where the cover is company funded, it must have a clearly defined eligibility (i.e. all employees, all managers and above, etc)

What’s covered?

Group critical illness insurance covers employees for the diagnosis of critical illnesses and will pay a lump sum benefit after surviving 14 days. Each policy will list the critical illnesses covered, and some policies may cover more than others. Depending on the additional options chosen, the policy may also cover terminal illnesses and cover for your children.


Every group critical illness policy will include exclusions, which are a list of terms stating what is not covered. This will vary from provider to provider, but some common examples you may find include:

  1. Critical illnesses that are a result of pre-existing or related medical conditions (unless included as a policy add-on)
  2. Critical illnesses that are diagnosed as a result of self-inflicted injuries.*
  3. Critical illnesses that are diagnosed as a result of alcohol or drug abuse.*

*You may find that some conditions are still covered if drugs, alcohol, or self-inflicted injuries are unrelated to the medical issue.

Additional cover options

You may have the option of including additional cover as part of your policy. Some examples may include:

  1. Total permanent disability - Employees can claim on the policy if they’re diagnosed as totally or permanently disabled.
  2. Partner cover - Extend coverage to employees’ spouses or partners under the same terms, up to a policy limit.

Provider benefits

Some UK insurance providers will provide their policyholders with additional benefits just for being a member with them. These vary between providers, and each has something unique to offer. Some examples of member benefits you may find include:

  1. Providing cancer support for employees and employers, such as advice and resources on how to navigate a diagnosis, how to support diagnosed employees and information on cancer.
  2. Help resources on how to stay healthy.
  3. Help resources on mental health, including guidance for employees and employers.
  4. Discounts and offers, such as gym memberships.
  5. 24/7 helplines so that you can contact a medical professional for advice and support.

Making a claim

If an insured employee is diagnosed with a critical illness included in the policy, they should contact the insurance provider immediately. They’ll handle the claims process and liaise directly with the employer and employee.

Please note: Some providers may not pay out for claims if an individual passes away due to an illness and did not notify their insurer prior, so it’s important to let the provider know as soon as possible.

What are the benefits of covering employees for critical illnesses?

Critical illness insurance for employees offers a range of benefits beyond the primary financial protection it provides in the event of a serious illness. Here are more advantages of critical illness insurance for employees:

  1. Tax-free payment - If a successful claim is made, the employee will receive a tax-free cash lump sum payment. This can be used however they like, such as covering their expenses if they cannot work, hospital stays, private healthcare, etc.
  1. Customisable coverage - Every policy can be customised and adapted to suit the business's needs, allowing them to pay for the cover they see as the most valuable to their employees.
  1. Attract and retain staff - Offering a comprehensive employee benefits package may help to attract talented employees and retain your staff members. Learn more by reading our blog What are employee benefits?
  1. Demonstrate you’re a caring employer - Taking out insurance policies that provide additional health, mental and financial support may show that you’re committed to their wellbeing. This may bring with it many benefits, such as increased loyalty, productivity, culture and more.
  1. Financially support your staff - The cost of critical illness protection may be too great for some of your employees to purchase. By covering the cost or contributing with them, you may be making this policy more accessible to them.
  1. Tax benefits - if a business is paying for the cover, they may be able to deduct the expense from pre-tax profits.
  1. Employee peace of mind - Critical illness may provide your staff with peace of mind knowing that should they be diagnosed, they’ll have access to financial support as well as health support if the chosen provider offers this.
  1. Group rates - Critical illness may be more cost-effective when covering a large group of employees compared to an individual employee paying for their cover only.
  1. Healthier workforce - Some providers will include resources that aim to improve your employees' physical and mental health. With these resources available, you may find that your workforce lives healthier lives.

Compare critical illness insurance for employees

Due to the differences between providers, we recommend that anyone interested in critical illness coverage for their employees compare their options across the UK market.

This is a service we offer for free, as well as providing support and answering any questions you may have. We’ll learn more about your business and aim to find the most competitively priced policy that offers the coverage you need. To get started, please complete the form below, and we’ll be in touch.

Speak to an independent insurance advisor

Our advisors are available to answer any questions, compare or renew policies, and help advise you on insurance needs. To speak to someone, provide some contact information, and a member will be in touch.

0800 970 1618
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.