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.
THE IRISH SOLUTION
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In the UK, our insurable interest laws are based on a complex series of very old and largely outdated laws and cases.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.
