Google the phrase ‘children's illness insurance’ and the internet will bring up approximately 1.3m search results in the space of 0.42 seconds.
Search engines may provide reams of information, but as with most financial matters, providing pure information does not help the general public.
While the results tell you there is such a thing and that it’s available in the UK, very few people will know how to drill down into the wealth of information available on the internet.
Moreover, it is unrealistic to imagine a new parent, or parents-to-be, full of expectant joys, will take it upon themselves not only to think ‘what happens if my child gets cancer’ but also to search for a policy that will protect them and their children.
Advisers therefore are best placed to start these discussions with their clients as part of generational financial planning, despite the sensitivity of the topic, and to help parents make sense of the myriad protection options open to them.
In particular, critical illness policies (CIC) have been increasingly important as a means of protecting the parent and the child.
The Association of British Insurers has had a children's CI definition as a feature of its model definitions since 1999, to reflect its usefulness to families as a means of providing financial benefit during difficult times.
Phil Nash, product development manager for Active Quote, says: “Children’s CIC used to be an element of policies that advisers were less keen to discuss with clients, due to its sensitive nature.
“However, we know children’s CIC is the fifth largest in terms of claims, so omitting this from a CIC recommendation would not be in the customers’ best interests.”
How does it work?
Generally, children’s cover is automatically embedded within a plan taken out by the parents – whether a critical illness or life assurance policy.
Deepak Jobanputra, deputy chief executive of VitalityLife, says: “Most modern critical illness policies include a small amount of cover for the children.”
For CIC, for example, there is an automatic addition of up to £20,000 to £25,000 of cover for children, which is underwritten along with the policyholder’s cover.
Currently £25,000 is the maximum although insurance companies are looking into raising this sum as consultations with advisers have flagged the need for higher sums to cater for higher medical costs.
Most cover is limited to 25 per cent of the parent’s sum assured and will protect children until they are 18, although some providers, such as LV=, will cover a child until they are 21 within the parent’s critical illness policy.
Johnny Timpson, protection specialist for Scottish Widows, comments: "The scope of cover available to the child will, in most cases, almost match that being provided to the parent."