Children’s CI an underserved market

Critical illness insurance for children presents a good news-bad news scenario for advisors seeking to boost revenues. On the upside, the market is underserved and therefore less competitive. But it remains a difficult sale, as CI usually ranks fairly low on a list of client priorities.

“You don’t have a lot of people focussed on it and (many) don’t fully understand some of the products and features that are available,” says Scott Beckett, president of Toronto-based Edgewater Financial Group Inc. The financial planning veteran has spent much of his 25 year career working in living benefits.

Adding to the equation, CI for children may provide a new source of income for advisors looking to replace revenues lost during the market crisis.

However the bad news consists of the usual problems with CI, including its lower ranking on the priority scale, below conventional life or disability insurance.

“The problem is that when you’ve spent money on those other things and now you’re trying to find a budget for CI and you’re trying to find a budget for CI for children. Unfortunately it’s farther down the pecking order,” he explains. Moreover, while critical illness insurance may not be as well known as desirable, CI for children is even less known, Beckett says.

CI for children may also suffer from client beliefs about insurance overall. “I would also say that any typical notions about insurance would apply to this generally,” Beckett says. “Typically people are always reticent or suspicious about buying more insurance because they often feel that they are going to pay for something they’ll never use (or) the agent is going to try and sell them something they will never need.”

Selling CI for children should become more productive with high net worth clients than with middle class clients, since they have more cash flow. But individuals in that category have a tendency to self-insure, meaning that they might finance high medical costs out of savings or by taking on debt.

CI policies for children range from $10,000 in coverage up to $250,000 and in exceptional cases up to $500,000 and can start when the child reaches the age of 30 days and typically range up to the age of 17 years. Selecting the correct product means working through advantages that vary between insurers. For example Sun Life offers a product which allows for increased coverage of up to $25,000 at specific age milestones such as 25 years and 30 years.

Beckett suggests several selling points for CI for children, starting with the fact that a child’s illness is already devastating for parents and can involve numerous painful decisions. Where the parents have a CI payout, they can at least make those decisions without financial constraints.

“It would allow them to make decisions that are focussed on the care of the child versus compromises around what they can afford with respect to the care of the child,” he says. The payout allows parents to take time off work for the child’s medical appointments, hire caregiving assistance or hire help to look after other children.

“All of these things are brutal decisions that families with sick children have to make day-to-day, while you put your life on hold,” he says, describing a recognizable scenario.

Among the product’s major advantages, according to Beckett, is that parents can lock down the child’s insurability – and often the cost — for life, for example by setting up a T100 policy. Insurers charge lower rates for younger children and provide better return of premium arrangements. Moreover children’s CI policies provide coverage for specific illnesses such as cerebral palsy and congenital heart disease, which are not covered in adult policies.

Meanwhile several factors affect insurability, including whether any of the listed illnesses manifest themselves before underwriting and the parents’ medical history.

A policy may also provide for quick pay terms. For example, the parent of an 8-year old may elect a ten pay policy, which becomes fully paid when the child reaches 18 years and is covered for life.

A return of premium provision may provide a young adult with liquidity at a difficult time.

“In essence it’s a hedging strategy. You’re making this investment into the plan or buying the coverage if you don’t have a claim or you feel that your circumstances will change and you don’t feel you need the coverage any more you do have the option of cancelling,” Beckett explains. In one example, the young adult may apply the refund to student loan debts, trading off bank interest saved against cost of setting up a new policy.

These advantages come at a fair cost. In a prototypical scenario a $250,000 T100 policy providing for return of premium and level pay for life would cost around $2,375 for a male and $1,982.50 for a female.