Critical illness cover can provide valuable protection for the whole family. Jason King answers some of the most commonly asked questions about children's cover
Q. How widely available is critical illness (CI) cover for children?
CI is now widely available, especially among the IFA providers. Where available it is included as standard within the plan at no extra cost. It will generally cover all children including natural, legally adopted and also frequently dependent step-children of the life assured, whether born before the plan was taken out or after.
Age limits do tend to vary. The most generous parameter is 30 days to 18 years. However, some major providers, including Norwich Union and Standard Life, restrict the minimum age to one year.
Providers who fail to include any children's benefit are Direct Line, HSBC, Halifax, MGM, NFU Mutual, Nat West, Nationwide and Virgin.
Q. What value does children's CI cover hold?
How do you place a value on your child's health? In monetary terms providers, such as Liverpool Victoria, Bright Grey and Standard Life, pay up to 50% of the parent's level of cover with a maximum of £25,000 compared to the maximum limit imposed by Norwich Union of just £10,000.
However, this payment can often be doubled. If a couple has separate plans, or separate cover within a menu plan, some providers such as Scottish Provident and Scottish Equitable will pay double claims - one from each plan.
Some providers also limit the number of claims that can be made. So, in the case of a large family it may make more financial sense to choose alternative policies to Legal & General who only allow two claims and Friends Provident who allow a maximum of three. Most other providers make no limit.
In reality, this payout to the parents at such a stressful time in their lives is of much greater value. Ask any parent what they value most above their own health and the answer will be the health of their family.
Despite being limited, a payment of up to £25,000 can provide valuable help worth many times the intrinsic value of such a payment.
The cash will ease the financial burden of a seriously ill child by providing funds to meet the cost of special equipment, private medical equipment or even allow a parent to take extended time off work to care for the child. The use of the funds is entirely at the discretion of the policyholder.
Q. Do policyholders see the value in children's CI cover?
While children's cover is rarely the reason why a person seeks out CI cover it can be a very important distinguishing factor when comparing providers. A provider with no children's cover clause will be at an obvious disadvantage when a parent is making comparisons.
From an adviser's point of view, children's cover should be highlighted as a key benefit. The tragic stories of leukaemia, chronic liver disease and other serious illnesses in children frequently make the news simply because it is such an emotive subject.
In fact, when cover becomes regulated in January 2005, the Financial Services Authority has already indicated that it will be addressing the subject of CI benefits, such as children's cover, in the advice process. Advisers will be expected to consider the different levels and types of cover available when advising parents and be able to document their advice accordingly.
Q. Do insurers see high claims rates on CI cover for children?
Only Scottish Provident actively publishes claims experience in full while Legal & General provides some claims information.
Since its launch in 1996, Scottish Provident has paid 114 claims under this clause, totalling some £2.4m, while Legal & General has paid 53 claims to date, totalling over £790,000. Children's benefit is now the seventh most common claim after cancer, heart attack, stroke, MS, coronary artery bypass surgery and total permanent disability (TPD). The average age at claim is six, although this average age is likely to rise in the future as contract matures.
Both providers' experience shows that leukaemia accounts for the vast majority of children's claims. With cancer, heart attack and stroke accounting for almost 2,000 of the 2,810 claims, children's cover is clearly not a major claim area for the providers. However children's cover does account for significantly more claims than coma, paralysis or other old age-related conditions.
Q. Are there any particular exclusions that are likely to apply to children's cover?
Children's cover is not underwritten in any way since cover applies to all children both present and future. As a result, exclusions always apply. The most common exclusion is "Any critical illness (or related medical condition), whether or not a diagnosis was made or any symptoms were present, that existed prior to policy commencement, the child attaining X days or the legal adoption of a child (if applicable)."
The clear purpose behind this is to exclude congenital conditions or medical conditions that were known to the parent at the time the policy was applied for. As a result, any hereditary condition that is present in the family will not be covered.
Usually, the full range of relevant CI definitions apply to the child (except for loss of independent existence) with an amended TPD definition to reflect the child's non-working status/age. The normal wording for children's TPD is that for a period of 12 months the child is totally and permanently disabled, confined to home/hospital with constant requirement for medical care and attention.
Importantly, any payment under the children's benefit does not in any way affect the parent's cover. After a successful children's cover claim, the main benefit level will continue for the parent and their children as before.
Q. What does the future have in store for this benefit?
Since its inception, children's benefit has grown into one of the more common claims conditions. With the current concerns over our children's diet, exercise and obesity in society it is entirely feasible that this area could attract more focus in the future.
Without doubt, children's cover has always been seen as a fringe benefit, however more attention needs to be drawn to this important benefit to encourage more providers to include it in their plans and more parents to select against those providers who offer little or no cover. Interestingly, Standard Life has recently increased their benefit level from 25% or a maximum of £20,000 to 50% or a maximum of £25,000, clearly highlighting the salience of this issue.
With much debate in the industry at present on the future shape and design of CI cover, it is important that providers ensure our children continue to be catered for and that this valuable benefit is maintained.
Children's CI cover is a valuable benefit which more parents should be encouraged to consider. Advisers need to work to promote this benefit, while providers should improve their sales documentation to provide more information on claims data.
Jason King is director of LifePolicies Direct
