ProtectionSep 14 2017

Pros and cons of children's cover

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Pros and cons of children's cover

Parents, when presented with the information by an experienced financial adviser, can see the value in having protection for their children automatically built into their life or critical illness policies.

Chris McNab, head of protection proposition for LV=, comments: “The real benefit of having cover for children is customers have added comfort, knowing the benefit payment will enable them to take care of their children if the child fell ill.

“This could be by enabling them to afford to take time off work to look after them, paying for private treatment or care, making adaptations to the home or just taking a holiday once they have recovered.”

And medical care for children’s illnesses can be expensive. For example, just for treating cancer cases in children, parents in the UK without any form of insurance have found themselves in debt.

Improved products

There have also been significant improvements to the quality and scope of children’s add-on cover over the past few years.

Children’s cover is ultimately an exercise in identifying the ‘core’ risks that clients are concerned with covering, and then building the most complete plan from the premiums they can afford. Rob Harvey

Paul Dalgliesh, head of protection propositions for Aviva points out that, where critical illness cover (CIC) is concerned, it initially provided a small benefit, “typically no more than £10,000".

“This has evolved over time and now makes up a significant volume of all providers’ CIC claims – the most common cause of claim for children being cancer, specifically leukaemia.

“In addition to covering children for many of the same conditions such as the policyholder, some providers also now offer cover for child-specific conditions, such as cerebral palsy and Down’s syndrome.”

“Additionally,” says Johnny Timpson, protection specialist for Scottish Widows, “In the past two or three years, we have seen an increasing number of CI policies provide a small children’s death benefit, typically £5,000.”

Simplicity

As most child cover comes as standard with an adult’s protection policy, this means clients do not have to fill out additional forms.

For Deepak Jobanputra, deputy chief executive of VitalityLife, this is important to many time-pressed advisers and their equally busy clients.

“Policies that cover children do not require any additional underwriting or medical tests. 

“They also pay out on a wide range of conditions, including some areas only relevant to young children.”

Mr McNab adds: “By automatically including children’s cover within critical illness policies, for no additional charge, this offers customers a quick and simple way of providing cover for themselves and their children at the same time.”

The cons

There are some potential downsides, however, to adding protection for children onto an adult’s policy.

The first thing is that the level of benefit is capped at £25,000. 

This sounds like a lot of money but for a child with a serious illness, who might need extensive travel, ongoing treatment and aftercare, this can quickly be eroded. 

Phil Nash, product development manager for ActiveQuote, comments: “This could prove to be insufficient to cover medical costs for serious conditions.”

Moreover, if a parent has left work to become the primary care giver, while a policy will help both the parent and the patient financially, it might not be enough to cover the potential shortfall in income. 

Therefore, where they can afford it, and it seems reasonable to do so – perhaps because of family history – it might be worth buying additional protection or considering private medical insurance policies specifically for children.

Rob Harvey, independent protection specialist for Drewberry Insurance, states: “The most comprehensive approach is likely to include elements of PMI, income protection and CIC, which means children’s cover is ultimately an exercise in identifying the ‘core’ risks that clients are concerned with covering, and then building the most complete plan from the premiums they can afford.”

What it covers – and does not cover

It is also worth noting the terms and conditions of the cover as many pre-existing conditions cannot be covered or claimed for. 

Mr Timpson explains: “Children’s cover will exclude any pre-existing health conditions the child has been diagnosed with before the parent has taken out cover.”

This might apply where pre-natal screening has indicated a chromosome defect or the potential for Down’s syndrome, so it is worth checking whether a policy that covers Down’s syndrome will still pay out if there was a pre-natal indication the child might have such a condition.

Mr Harvey adds: “Because there is no ‘immediate insurable interest’ with children, the level of benefits available are, in reality, unlikely to be of a useful size.

“The fact is, a regular income will probably be far more useful than a small lump sum in the event of a serious problem with a child’s health.”

Therefore it is worth the parents and advisers making sure they have provided full disclosure before taking out insurance, to avoid the possibility of having a claim declined. 

Moreover, as Garry Webb, head of compliance for financial advisory firm Roxburgh Financial Management, comments, cover is restricted to “life-changing conditions”. 

As such, he would like to see more innovation in the market. He explains: “Clients take income protection primarily against what they see as more likely reasons to be off work, such as short-term illness and accident.

“At present there is no specific plan that provides similar cover if their child were in this position and they had to take unpaid leave to look after the child. 

“This would be a major move forward in family cover.”

Then there’s the fact automatic cover means some people might be paying for something they will never be able to use. 

Mr Nash explains: “Policyholders with no current children, grown-up children or those who will never have children are effectively paying for an element of cover they will never be able to claim on.”

The Association of British Insurers (ABI) has set out what insurers should be stating clearly on their forms so advisers and clients know what will not be covered.

Its 2014 statement of best practice for CIC policies, for example, states forms should use clear model wording.  

NHS vs private

It needs to be said children in the UK have been, and will be looked after well by the National Health Service (NHS) in most cases. 

The NHS does not charge you to give birth – unlike the US – and for the vast majority of children’s illnesses, the NHS will provide care, compliments of the taxpayer. 

However, there may be additional treatments needed that are not available on the NHS, or there may be such a long waiting list that the parent or guardian believes going private will give the child the best possible chance. 

Moreover, many after-care treatments, such as counselling or ongoing physiotherapy, will need to be funded by the family.

Some plans do offer a free hospitalisation benefit for children, but again this is limited in term and cover level.

And just because the NHS has always looked after the UK ‘from cradle to grave’ (or from conception to cremation in some cases), does not mean the future will always be so bright. 

Consider the political climate: the NHS is getting stretched in terms of resources and may not be able to continue providing what it has done in the past.

Therefore, it is understandable why parents might consider purchasing additional protection to be a step too far.

However, at the least, advisers should talk to clients about having their own policies with automatic cover built in for their children, regardless of whether they buy additional cover specifically for their offspring.

simoney.kyriakou@ft.com