Protection  

Ensuring children are covered

Sam Barrett

Having children is often the trigger for taking out protection. But while these particular policies can help to safeguard financial futures if a parent dies prematurely or is too ill to work, some mainstream products extend their benefits to children, too.

This is particularly the case with critical illness insurance, where most policies will automatically extend cover to the policyholders’ children. This can include legally adopted and step children as well as any the policyholder may have throughout the term of the policy.

There are conditions attached. The sum assured is usually fixed at 50 per cent of the policyholder’s cover, subject to a maximum of £25,000, but there are variations. For example, VitalityLife’s serious illness plan allows policyholders to add up to £100,000 of extra cover for children, and LV’s plan doubles the payout for 10 conditions, including blindness and paralysis of a limb, to a maximum of £50,000 if the claim is the result of an accident.

Cover usually kicks in when the child is 30 days old and runs until they are 18, or 21, especially if they remain in full-time education. Furthermore, a claim will not affect the policyholder’s overall level of cover.

Although there are limits on the payment, Steve Bryan, director, intermediary at Legal & General, says it can still be a valuable benefit to parents if a child becomes seriously ill. 

“It may not be the primary reason they take out cover, but it could pay for the cost of treatment, time off work or additional care for the child or their brothers and sisters,” he says.

 

Number crunching

The claims statistics show how important this benefit can be. Although the number of children’s critical illness claims is dwarfed by those for the big three conditions: cancer, heart attack and stroke, insurers regularly report this type of claim in their top five.

For example, children’s claims made up 3 per cent of all of Royal London’s critical illness claims in 2015. This made it the insurer’s fifth most common reason for a claim, behind multiple sclerosis and the top three.

Likewise, while insurers often promote this as a freebie, their claims bills for this element of cover are substantial. Aviva paid out £2.3m for 135 claims across its Friends Life and Aviva businesses in 2015, while Legal & General paid out £1.9m, benefitting 106 families.

Further analysis of Legal & General’s claims shows the average paid out in 2015 was £18,181, with the largest claim £26,000. And, just like the overall critical illness statistics, the most common cause of child claims was cancer, accounting for 60.5 per cent of claims, with strokes in second place at 11.4 per cent.

The insurer also found that the average age at which a child makes a claim is seven, with the youngest just one month old.

 

Small print

Although this is a common benefit, if it is particularly important to a client to have child cover, policy differences mean it is essential to study the terms and conditions.

First, not all insurers automatically include child cover. According to Defaqto, 47 of the 56 critical illness products on its database include cover for children, with the simpler products and those that focus on business protection more likely to drop it. While this could appease those who do not have any need for this benefit, Tom Connor, director at independent advisers Drewberry Insurance, says it makes little difference in practice.