Child CI cover is a common benefit on critical illness products in the UK. In Ireland, regulations allow insurers to take cover relating to children a step further, as Greg Becker expains
When many people look at personal finances, they do so not at the individual level, but at the level of the household.
Tax law can at times benefit or penalise couples, and also children come into the tax (and benefit) planning mix, most recently with discussions surrounding the Child Benefit reform from the recent Budget.
Insurance benefits are generally bought by people to look after themselves or family members, and the triggers are normally events affecting family members.
For example, life insurance is often bought to protect dependents on their parents' death. It is very common for critical illness (CI) policies to include some level of child CI benefit, with the vast majority of CI policies having some kind of child CI benefit- the logic being that a parent will wish to have the resources to care for their sick child.
In Ireland, the question of cover on children has been taken a step further, and it is common for death benefits to be paid on the death of a child.
As an example, Irish Life's Life Long Cover offers cover of €6,000 (£4,900) on each child under the age of 21. The children's Hospital Cash Cover is a cleverly defined benefit where the benefit is conditional on the child being in hospital for a specified duration. Benefit payment is triggered on hospitalisation of between three and 14 days.
The advantage of this benefit-trigger definition is it is totally clear, which should reduce dispute at time of claim. In the UK, our insurable interest laws are based on a complex series of very old and largely outdated laws and cases.
In short, it is illegal to take out a contract on anyone other than yourself or your spouse, or other party in which you have a financial interest.
You may not legally hold a policy for your children (this law was put in place as a result of baby farming, which became an unsavoury feature of 19th century England) and so our modern CI contracts paying out children's benefits might strictly speaking be considered illegal.
The Law Commission's 11th programme of law reform is looking at insurable interest with a view to actually recommending reforming the law and making it more relevant to modern society.
One proposal is to use a test of economic dependency as the basis for insurable interest, with the dependency having to be proved at the outset of the policy. In addition, the Law Commission recognises that elderly long-term care needs may also become something children and even grandchildren may wish to insure.
With a quarter of today's children projected to live to more than 100, we are about to enter a society where there will be even more generations alive at the same time, and being able to insure in an inter-generational way may become a market for tomorrow. These types of products have started to emerge in France, for example.
In the UK, funeral plans are increasingly popular, but they relate to only the proposer, whereas in many countries, funeral plans are designed to cover the needs of you, your wife and your dependent children.
These kinds of innovative products could come to our shores as a result of the Law Commission changes and would be a better fi t for a family's needs.
Some traumatic events stand out. A university student was involved in a tragic accident at the beach where his neck was broken, leaving him severely disabled and in a wheelchair.
His parents incurred significant costs to renovate their house and had to remortgage in order to purchase a vehicle that could transport their son.
This legal amendment relating to insurable interest will make it possible to insure children, and parents may be in a position to protect against the eventuality their child becomes a dependent for life.
This may prove to be a real and valuable benefit for parents who may want to stop work to support a child's long-term care needs.
Many customers blow all their protection spending on a policy paying out on the death of a particular parent. Given that individuals have a limited amount of money to spend on insurance products, should premiums be allocated so claim payments are made in a wide range of unfortunate situations?
Will these legal developments lead to more family oriented products with the whole family covered? Will family funeral plans become the new ‘under 50s' plan?
Greg Becker is product development actuary at RGA
