News that a child is on the way brings worries and costs to mind. Insurers, however, wish they figured more prominently in a new family's financial planning, writes Lucy Quinton
There are stressful times at certain junctures of everybody's life and wise old folk say buying a house, marriage and latterly divorce are the sure signs of stress. However, the birth of a couple's child is an irrevocably stressful occasion, so what are providers up to in order to ensure that the baby does not get thrown out with the bath water?
Similar to a Credit Lyonnais advert in France two years ago that showed a couple in the throws of passion pausing to ponder whether they had protection and the woman replying that she had gone to the bank that morning, Ian Brown, head of protection marketing at Skandia, says that, ideally, "couples should start reviewing their financial plans before trying to get pregnant - for piece of mind and because it is important to ensure that cover is in place during pregnancy".
The starting block when looking at financial protection is to consider the expected change in a family's income. Parents need to bear in mind that their situation could well change during maternity and paternity leave and afterwards. Brown says that it is also essential to look at any non-working parents in addition to the working parents. "For example, parents must consider how they would manage and fund childcare if a non-working parent became unwell and unable to look after the children themselves," he explains.
Overall, Andrew Cook, protection marketing manager at Standard Life, says he would expect that the big three products to be considered would be life cover, critical illness (CI) and income protection (IP).
Alan Lakey, principal of Highclere Financial Services, says though that assuming they already have any requisite mortgage cover and IP, where appropriate, the answer also lies in family income benefit (FIB). He adds: "Ideally the plan should cover both lives and last for such a period as to cover any future children to the age of 21".
Sustainable
Agreeing with Lakey, Brown points out that cover needs to be sustainable until the child or children will be able to support themselves financially. Primarily the health of the parents is the initial consideration but the health of the children should also be taken in to account when considering protection.
An example of this is shown by Skandia that is able to accommodate children as well as their parents with the CI policy which automatically covers children from the age of 30 days until they are 18. "This applies to single and multiple births and adopted children and can provide valuable financial support at an extremely distressing time. The level of cover has recently increased to up to £25,000 a child if they suffer from any of the listed conditions, or up to £50,000 if both parents have taken out a separate policy," he adds.
Cook adds that when a couple are looking to take out financial protection when the woman is expecting a child, it is also a good time to see whether the couple should have separate policies rather than joint life plans. Should the couple decide to have separate plans, this may offer more individual flexibility as the income patterns change.
The rules and conditions are the same for adopted children. Andy Milburn, IFA market manager at Royal Liver, says: "We treat adoption exactly the same as a birth. For us, if anyone fails to follow that path they are failing in the Financial Services Authority's Treating Customers Fairly principle - as the pressures are identical." Cook adds that most CI policies treat adopted children equally with natural children although pre-existing conditions are excluded. But parents should consider arranging extra cover should anything happen to them.
At such a stressful time, the parents of a newborn child should not have to be thinking about financial protection for them or for the child. As Milburn says, this milestone should "always be a trigger to their advisers to review their circumstances beforehand".
Emma Walker, sales manager of protection at Moneysupermarket.com, agrees with Milburn's suggestion but adds a note of caution: "The challenge here can be that the perfect protection solution may be out of someone's budget, so it is important that this is discussed."
She is concerned that, if someone cannot afford the full solution they are recommended, they end up walking away with nothing. "It is at times like this that advisers need to ensure they explore some protection, for example, using menu benefit-style products to give some cover rather than nothing at all by understanding the priority level of each need and selling to budget," Walker says.
At Royal Liver, the provider also offers a carers' cover on its IP product that pays the adult to replace their lost income, if they have to take time off work unpaid to care for a child who has suffered a critical illness.
The area of the market catering for couples having children certainly appears to have improved over the last few years, with the number of products on the market continuing to grow - so, effectively, the choice has increased. That said, Cook admits that, unfortunately, there has not been any real product innovation to cater for this market. On the plus side though, he explains that the present price competition may mean a couple could get a better deal on their existing covers.
Agreeing with Cook, Graham Harvey, managing director of Axa Protection, says that, in general, prices have come down through market competition and, adding to the idea that the market has improved over the last few years, he says better processes for customers have also been introduced, such as tele-underwriting and medical helplines.
With all the necessary complications regarding family income and what will happen to parents' working arrangements, it is clearly fundamental to seek advice. As Cook says: "I would bet that many people just think of life assurance when they think about insurance. So it's up to an adviser to convince their client of the need for other forms of insurance as well".
Cost
Cost is a serious consideration to new parents. A fundamental issue that applies across the board in protection is that it is too often perceived as a luxury product, a benefit of the wealthy. Therefore, when financial savings will no doubt have to be made, many people will not even consider looking to take out insurance. "When the household income will be about to take a nose-dive, the cost of any new insurance is going to be scrutinised very closely. We need to think about how we can help families maintain their necessary cover yet make it more affordable for the time that their finances are taking a battering," Cook explains.
Harvey, however, says that, apart from cost, there are other issues that should be worked on to ensure the consumer is satisfied. "There is always room for better disclosure to ensure claims are paid resulting in an enhanced consumer confidence in insurance," he adds.
Also, Lakey says that FIB is a missed opportunity as not every provider offers it and of those that do, not many will include indexation of cover. He says that FIB is a forgotten product which providers and advisers too fail to consider or mention when it comes to family protection.
Walker also adds that there is room for improvement in several key areas but in particular she highlights that the industry needs to work together to educate consumers on the value of protection.
"Protection is good value and the benefits that it provides at the worst times in life can only really be confirmed by people who have experienced it. I really do wish that we saw the same awareness campaigns for protection as we do for other financial services products, even tax benefits, on how to, for example, complete a tax form. All are important and so is the need for protection," she explains.
In addition, Walker points out that the million-dollar question is whether it is possible for the industry to work closer with parents-to-be. One idea follows on from the bounty pack that midwives provide to new mothers, which include discounted vouchers, things to consider and information to contact an insurer about life cover - however, Walker says: "what about other protection needs?"
The industry clearly responds well to new little entrants but the key issue is actually making contact with them in the first place. The only way to get people in is for the industry to broaden its horizons and consider new options such as using midwives' bounty packs to lure consumers in and get their attention.
