How does a children's critical illness benefit work? Will the child be underwritten?
Most critical illness policies include a children's benefit for free. Typically, this benefit will cover a child from the age of 30 days until they reach 18. If the child suffers one of the named critical illnesses or conditions, the policy will pay out a lump sum ' normally limited to the lower of 50% of the sum assured and £25,000. This benefit is valuable as the payment does not reduce the sum assured, so parents still have full cover in place ' even after a child's claim.
Providers don't expect to underwrite children. Children may even be included automatically when they become old enough to be insured, without the policyholder needing to tell the insurer.
So how can the providers do this? First by excluding pre-existing conditions and second, by making it a standard add-on benefit. Excluding pre-existing conditions means the provider will not pay a claim caused by any illness the child was born with, or which develops before they are insured. Rather than underwriting the child at outset, the provider will check the child's medical records to ensure the condition did not exist before cover started.
By making the benefit a standard feature, the company reduces the likelihood of anti-selection. If the benefit were an option, only those motivated to include it would do so. For example, those with children may choose it and as a result, could increase the claims experience. Including it for all keeps the claims experience on a more level ground.
Children's benefit is an excellent feature and has already helped many parents financially when faced with the unexpected.
Shelley Robertson
