What policies are best for children's cover?

Insurable interest, according to the Association of British Insurers, is defined as: "The interest that a person has in something such as a particular property or another individual.

"This means the person would suffer a loss should that property or individual be harmed. In insurance law, you can only buy insurance for something or someone in which you have an insurable interest."

Therefore, with insurance policies that provide a level of cover for children, it automatically attaches to the parent’s critical illness cover (CIC) as standard. 

Generally, children’s cover will be limited to 25 per cent of the parent’s sum assured.

According to Deepak Jobanputra, deputy chief executive of VitalityLife, the automatic basic child cover is a boon, for the reason: “In our experience, people do not typically want to think about or plan for their child becoming ill.

Having a plan specifically designed to cover children would be a major advancement. Garry Webb

“So it is automatic cover, and add-on options that will provide the most appropriate solutions.”

The level of cover for a child often depends on the level of critical illness cover, with a cap as to age (18 or 21 according to the policy). 

Phil Nash, product development manager for Active Quote, comments: “The level of coverage as an add-on is fairly comprehensive, although it is normally capped at £25,000.”

Children’s PMI

One exception is in private medical insurance (PMI), where children can be given standalone cover. 

As Rob Harvey, independent protection expert for Drewberry points out, the benefits are not paid to the beneficiaries but to the private hospitals that will provide the care needed. 

This means some PMI providers will underwrite standalone children’s medical insurance. 

Such standalone PMI policies can be obtained from Axa PPP Healthcare, which provides Personal Health cover that can be bought for children only, and Aviva’s Child Health Essential.

The Axa PPP plan offers a range of benefits and support services to cater for parents and their children, including a Health at Hand helpline, which is staffed by midwives, pharmacists and nurses who can support new parents, as well as help with accommodation costs (up to £100 per night) if a parent needs to stay away from home if their child is in hospital.

Also, for parents who already have Personal Health cover with Axa PPP Healthcare, new-borns can be added to their plan for free until the policy’s renewal date.

However, having separate PMI for children, can add to a parent’s bill. Although the monthly sums can be low, when this is added onto the cost of the parents’ own separate insurance policies, it can all add up. 

For Garry Webb, head of compliance for Roxburgh Financial Management, protection providers should do more to create standalone children’s cover outside of the world of PMI. 

He would like to see standalone income protection that covers children’s illnesses and helps parents taking time off to look after them. 

He says: “Having a plan specifically designed to cover children would be a major advancement.

“This allows clients to make a tailored choice in the cover they are seeking. It also helps where clients already have cover in place and therefore are not over-insuring themselves to get children’s cover.

“Moreover, it would help where, because of underwriting issues, some clients would not be able to get, or would be restricted in getting, cover.”

Mr Webb also believes the industry could be more innovative in the way it could underwrite such standalone income protection policies for children. 

He adds: “I appreciate that trying to apply a similar underwriting ethos for income protection to children would be difficult, but surely in this age, not impossible.”

Range of products

And there are many providers who offer children’s CIC as an add-on, although this can be an “expensive exercise to secure a high level of guaranteed cover for children from more mainstream providers,” says Mr Harvey.

However, he says if having cover for a child is of particular concern, it is worth looking at what is on offer.

Mr Harvey states: “Providers have come up with more creative ways to offer enhanced children’s coverage as riders on adult policies.”

He highlights four particular “more creative” offerings that Drewberry advisers have been looking at (see info box), although these come with a slightly higher price tag than the standard CIC for a parent.

Ease of information

Paul Dalgliesh, head of protection propositions at Aviva UK, comments: “It is reasonably easy to find protection products that cover children’s illnesses. 

“A number of providers not only sell products through intermediaries but also direct to customers.”

Moreover, as Mr Nash adds, providers have done much in recent years to boost the children’s element of policies.

He explains: “There has been much development by providers in terms of coverage of conditions, eligibility age, and number of children covered.

“As a result, the majority of CIC plans now cover children’s illnesses, with some fairly comprehensive cover available from the higher-quality plans in the market.”

Handy hints

Mr Harvey says for advisers looking to minimise the cost for their clients but maximise the potential cover is to arrange individual CI policies for the parents.

He explains: “One way to potentially increase the level of a child’s CIC is for the parents to arrange individual policies rather than joint life coverage.

“This could effectively double up the child’s cover, although it is worth noting that, in many cases, the insurers will limit the overall amount of cover available (£20,000 or £25,000 depending on policy) even when multiple policies are taken out.”

simoney.kyriakou@ft.com