At first glance, children’s critical illness seems relatively simple. If a child of the life assured suffers from a condition covered by the policy and meets the criteria then a claim will be paid. Whilst this is generally true, there is (as always) fine print that advisers should be aware of, especially when advising clients that are responsible for children that are not naturally born to them. This week, we are delving deeper into the fine print and looking at some key differences such as which children are covered and when a claim can be made.
Many advisers will have come across clients that will tell them that they have X number of children, however further investigations find that one or more of the children are not naturally theirs. In such situations, and where critical illness is being recommended, it is worth understanding how insurers would treat them with regard to children’s critical illness to avoid a scenario where the child is not covered.
A quick read through the Child CI section of any insurer’s T&Cs will find a lot of references to the “Child” but often the definition or explanation of what constitutes an “eligible child” is squirrelled away in a definitions section usually at the end of the document. Across the market there are six different definitions of an eligible child:
- The natural child of a life assured,
- A step child of a life assured,
- The legally adopted child of a life assured
- A child where the life assured is a legal guardian
- A child that is financially dependent on the life assured
- A child who resides with and is financially dependent on the life assured
Whilst all insurers include the first three in their overall definition of an eligible child, not all insurers include the last three definitions. In reality, where the life assured is a legal guardian, the child is likely to be living with and/or financially dependent on them (although this may not always be the case) so in the majority of cases the 5th and 6th definition would cover legal guardianship. This aside, defining an eligible child as a child that resides with and/or is financial dependent on the life assured seems to be the broadest definition covering the most scenarios.
Not having one of these definitions could be a key consideration for some clients because, whilst insurers are likely to pay a claim for a child who resides with and/or is financially dependent or where the life assured is a legal guardian, if this is not explicitly shown in the T&Cs they are not contractually bound to pay this claim. This however highlights that advisers should make efforts to understand in more detail the specific relationship between clients and their children to ensure that they are contractually covered by the policy put in place.
Where a client has a large family it will be important to understand whether all their children will be covered by their critical illness plan. With the exception of Legal & General and Vitality all insurers will cover unlimited children as long as they meet the eligible child criteria.
The child cover that is automatically included within the VitalityLife plan will also cover unlimited eligible children, however where additional child cover is added this needs to be added per child, meaning only the named child will be covered. This also applies for the Vitality Essentials plan.
For Legal & General, the standard Child Critical Illness Cover (CCIC) will only cover two children. If the enhanced child critical illness cover (CCIx) is added to a plan then this will cover an unlimited number of eligible children.
Where both parents have separate policies, all insurers will allow each parent to claim for the same child (as long as child CI is included). Old Mutual Wealth also apply this logic to joint life policies where both parents are lives assured by doubling the monetary amount of cover for the child from £25,000 to £50,000 (however the maximum percentage of the sum assured they will pay remains at 50%).
Like adult cover, most insurers apply a survival period to their child critical illness policies. The survival period denotes the number of days a child has to survive after the diagnosis of a critical illness, before a claim can be paid. Historically the survival period was 14 days for most insurers, however in recent times a good proportion of insurers have decreased this to 10 days (where the less days the better).
LV= are the only insurer that do not apply a survival period to their child cover. This is a huge benefit and, in many ways, makes up for the fact that they do not offer child death benefits as a child could suffer from a critical illness and die the next day but LV= would still be required to pay the claim where other insurers would not. Advisers should be aware, however that child death benefits will generally be paid very quickly to help cover the costs of a funeral and a CI claim is likely to take longer to pay.
Where advisers are dealing with the perceived “normal” families where there are two or three natural children, much of this detail will be irrelevant. For those that are not “normal” (especially those that foster children), advisers should be aware of which insurers will cover the children and for how much. Although it is unlikely that an insurer would decline a child critical illness claim where the child is either living with, or financially dependent on, the life assured there would be few worse things for an adviser than telling their client that their child does not qualify and a claim would not be paid after the event.
In terms of eligible children Scottish Widows really stand out as they only require children to be financially dependent on the life assured (as long as they are within the right age range). Royal London are also notable as they cover any child that resides with, and is financially dependent on, the life assured. Both of these definitions would generally cover the vast majority of children that are not natural, adopted or step children. Old Mutual Wealth and Guardian should also be commending for including children where the life assured is a legal guardian. LV= should also be commended for being the only insurer that has no minimum survival period on their children’s critical illness cover.