Insuring children against severe illness
This article was first published in the first-quarter 2015 edition of Personal Finance magazine.
If you could custom-design an assurance policy that protected you financially from the consequences of your child contracting a severe illness or sustaining a debilitating injury, what would you want it to cover?
Foremost on most people’s minds would be expenses not covered by their medical scheme. If your child had congenital defects that required multiple operations to correct, or contracted cancer, or perhaps sustained burns that required reconstructive surgery running to hundreds of thousands of rands, your medical scheme benefits would probably quickly dry up, leaving you facing huge out-of-pocket costs.
You’d also want cover for additional expenses you are likely to incur, which could be considerable. These may include:
* The cost of employing someone to take care of your other children;
* Travel expenses if your child needs treatment at a specialised centre that is far away from where you live (see “Leukaemia is often curable”, below);
* A reduction in income if you take time off work after using up your leave, or if you are self-employed;
* The cost of therapy to teach your child new physical skills; or
* The cost of making structural changes to your home or car.
And what about the period of cover? Statistics show that the incidence of serious illness is high in the first year of life. It drops substantially after that, remaining low until adulthood, when it begins to rise again. So you would expect the cover to apply from your child’s birth up until the end of his or her school years.
An all-encompassing product is not available, for various reasons. For a start, regulation separates medical scheme cover from other forms of healthcare cover, and this separation is likely to be more strictly defined and applied in the future. Also, such a product would probably be largely unaffordable.
Child critical illness policies are designed mainly to help you meet non-medical expenses, such as those listed above. Most would fall pitifully short in bridging the gap between what your medical scheme pays and actual treatment costs if these costs were very high. However, gap cover is designed for this purpose (see “Cover in context”, below).
A stand-alone, child-specific policy by Sanlam is a welcome addition to the existing range of products, and its premiums are affordable. However, it does not cover the crucial first year of life. But neither do the products of most other assurers surveyed, which offer child cover mostly as a side-benefit – albeit mostly free of charge – of critical illness cover for you, the parent. On these products, the child cover is a relatively small fraction of your cover (see “What other major assurers offer”, below).
Sanlam’s stand-alone policy
Sanlam’s child illness and injury policy, launched late in 2014, provides a cash payout of up to R1 million.
Sanlam product actuary Karen Bongers says the benefit covers a wide range of events, from dread diseases to injuries, impairments and infections – and that, of the 81 claim events included, 24 are not covered by other assurers in their policy benefits for children. Apart from “standard” claim events, such as cancer, heart surgery, loss of sight, and meningitis, the Sanlam benefit covers events such as dog bites, gunshot wounds, rib fractures, tetanus, anorexia, Crohn’s disease and Ebola. Furthermore, if a child is admitted to an intensive care unit (ICU) for at least 48 hours for any reason, perhaps after an emergency such as accidental poisoning or a snake bite, the parents can claim under the policy’s ICU claim event.
“As an ultimate safety net, we also have a catch-all claim event to cover any other diseases or injuries not specifically listed, but severe enough to warrant a payment,” Bongers says.
(Remember that your medical expenses in an emergency should be covered by your medical scheme, because emergencies are covered by the prescribed minimum benefits – a list of benefits that, by law, your scheme must cover in full.)
As is common with critical illness cover, including cover for adults, the most severe conditions will secure a 100-percent payout, while less severe conditions will secure a smaller payout, typically 75 percent, 50 percent or 25 percent or less of the cover amount.
Bongers says: “If we admit a claim that pays out less than 100 percent of the cover amount, the remaining amount of cover remains available for future related or unrelated claims. If the same cause results in simultaneous claims, however – for example, a motor accident resulting in rib fractures, head injury and ICU care – we will pay only for the claim event with the highest percentage payout.”
The premium for the maximum amount of cover, R1 million, for a single nominated child, is, on average, R115 a month, according to Bongers.
It is available from a child’s first birthday until he or she reaches age 19, so children can be covered throughout their school years. This, she says, is particularly important for active children, especially those who engage in extreme sports.
Apart from completing the necessary forms when you apply for cover, the submission of historical medical reports and a basic physical examination is the most Sanlam might ask. Pre-existing conditions, including congenital conditions that have manifested by age one, are excluded.
Bongers says the product does not cover a child from birth because the premiums would be too high. “Our benefit is aimed at covering events after the first birthday, offering those who want to cover their children from that age onwards a more affordable premium,” she says.
What other major assurers offer
Below are the child illness benefits on offer, typically on a parent’s critical illness policy, by a selection of other major assurers. They differ in what conditions they cover, the age range they cover, and how much they pay out.
Altrisk offers children’s cover as a free add-on benefit to a parent’s comprehensive critical illness policy.
As it does for adults, it covers all major body systems in the event of being diagnosed with a specific illness, having a specific condition or undergoing a specific procedure. A catch-all section covers extended hospitalisation, ICU stays and life-saving emergency procedures.
Cover starts at six months and ends on the child’s 21st birthday (or 24th if the child is a full-time student). The sum assured for each child is 15 percent of the adult’s benefit, to a maximum of R300 000.
If both parents have policies, the benefit is restricted to the highest amount on a single policy. There is no limit on the number of children covered, but it is payable only once for each child, and once two claims have been paid, the cover ends.
Congenital, familial (conditions that tend to occur in families) and pre-existing conditions are excluded.
Any payments made under the children’s benefit do not reduce the adult’s benefit.
BrightRock’s children’s illness cover is a free benefit of a parent’s critical illness cover – or what it terms “additional expense needs cover” – and applies to children from birth to the age of 18. It is available to you if, in addition, you have a death or disability policy and, on either, have taken out cover for the future education and care of your children.
Your children are covered for the same conditions for which you are covered (over 300 conditions), as well as 36 child-specific conditions. On the standard benefit, each child has cover of up to 20 percent of your benefit, to a maximum of R200 000. Further, if both you and your spouse have cover, you can claim double the sum assured, which translates to up to R800 000 per claim event per child.
On Brightrock’s Premier Max option, if both parents have cover, the maximum potential payout is R1.6 million.
There is no limit on the number of claims, and claims against the child benefit have no impact on the parents’ cover.
BrightRock executive director Schalk Malan says: “In designing BrightRock’s benefit, we have ensured that the cover is particularly focused on the first few years of children’s lives, precisely because we know that the incidence of severe illness claims is highest in the first few years after birth. This is especially relevant to congenital birth defects and issues at birth – a reason we offer cover for the first three months of the child’s life, as long as a parent has cover for the nine months leading up to the child’s birth.”
Classic Life Plan policyholders who buy the severe illness benefit automatically receive free severe illness cover for their children up to a maximum per claim event, depending on the parents’ sums assured. If you want to take out further cover for your children, you can do so for an additional premium.
Children are covered for the same conditions as their parents, as well as 12 child-specific conditions, from birth up to the age of 18. It is for each child in the family and is provided without medical underwriting, but it excludes pre-existing medical conditions that you know about.
A claim for any child is limited to 10 percent of the parents’ total sum assured for their severe illness benefits, up to R125 000 per claim. There is no limit on how many qualifying claims can be made per child.
Child claims do not reduce the adults’ benefits.
For an additional premium, Discovery has a family trauma benefit for all members of the family, which covers specified accidental injuries, including burns, coma due to trauma, medical emergencies requiring resuscitation, and stays in ICU.
Liberty’s Child Living Lifestyle benefit is available from R6 a month for R50 000 cover to parents who have the Living Lifestyle or Living Lifestyle Plus
critical illness policies, providing them with a lump sum if a child is diagnosed with a condition listed under 12 benefit categories.
Cover for each child must be bought separately, and each child must be assured for the same sum. Cover is limited to between R50 000 and R250 000. One claim is permitted per child, after which the benefit for that child will cease. All categories pay out 100 percent of the benefit, except the organ transplant category, which pays 200 percent. Children can be covered between the ages of three and 18.
Liberty also offers child illness benefits linked to two income protection plans:
* Living Lifestyle Dependant Protector provides up to six times the monthly income protection benefit amount as a lump sum if your spouse or child is diagnosed with a critical illness; and
* The Child Illness Protector, available free as part of the Absolute Income Protector plan pays your full monthly sum assured if your child is diagnosed as terminally ill.
Momentum Myriad’s critical illness cover for children is for the same categories of conditions that the parents are covered for on their policies. The cover is free and included automatically.
Payout percentages are based on the severity of the condition, and can range from a five-percent to a 100-percent payout of the sum assured. The parents’ choice of benefit option determines the events for which they, and therefore their children, are covered and at what payout levels. The child benefit is 10 percent of the corresponding severity amount of the parent’s benefit, to a maximum of R125 000. If both parents have critical illness cover, Momentum will make two payments – one for each parent – to a maximum of R125 000 per parent.
A subsequent claim in the same category will be paid only if the claim event is more severe than the previous claim. The amount will be based on the difference between the percentage payout for the new claim and the total percentage paid for that category to date.
Children are covered from their first to their 18th birthday, and pre-existing conditions are excluded. The benefit does not apply within the first 12 months following the birth or adoption of a child.
Payouts for your child do not reduce the benefits you, as an adult, enjoy.
Old Mutual Greenlight
Old Mutual’s Greenlight Child Severe Illness benefit covers biological or legally adopted children for 29 conditions from their second birthday to age 18, according to Dr Peter Bond, chief medical officer, and Jaco Gouws, risk marketing manager at Old Mutual.
The benefit is automatic and free to parents who have a Greenlight Elite or Elite Plus Severe Illness Benefit. Although all your children can be covered by a single policy, only one claim per child is allowed, up to R500 000, and two claims are allowed per policy. Payouts for children do not reduce the benefits for adults.
Pre-existing conditions are excluded.
Old Mutual also offers free child impairment cover (including cover for congenital birth defects) under a parent’s Old Mutual’s Greenlight Extensive or Extensive Plus Disability benefit. The cover applies from birth to a child’s 13th birthday.
LEUKAEMIA IS OFTEN CURABLE
Leukaemia is the most common cancer in children, making up almost one out of three childhood cancers. Until fairly recently, it almost always resulted in death, but today leukaemia can usually be successfully treated at specialised centres, says Dr Jackie Thomson, a haematologist who heads the Alberts Cellular Therapy Unit at Netcare Pretoria East Hospital, one of the most sophisticated treatment facilities of its kind in Africa.
“Unbelievable advances have been made in the treatment of leukaemia in recent years. New drugs and therapies are now available to fight the disease, and gene testing enables doctors to accurately target each individual’s treatment. If patients are treated by experts in specialised facilities, using highly advanced technology and evidence-based treatment protocols, the success rate is very high,” Dr Thomson says.
She says that in children with leukaemia under the age of 15 who are treated at specialist facilities such as the Alberts Cellular Therapy Unit, the five-year survival rate is 75 percent. Significantly, if the child is cancer-free for more than five years, as the majority are, the disease does not usually return. In other words, childhood leukaemia is often completely curable today.
Bone marrow transplants are usually part of the treatment. This involves taking stem cells from a donor’s bone marrow and transplanting them into a patient who has undergone intensive chemo- or radiotherapy.
However, while it is life-saving, the treatment comes with a number of risks. “The bone marrow is damaged during the transplantation process, and for a time is not able to make blood cells. This makes patients very susceptible to infection. Any treatment programme must ensure that therapy is performed as safely as possible,” Dr Thomson says.
There are different types of leukaemia. The most common form among children, acute lymphoblastic leukaemia (ALL), is, nonetheless, very rare: in 2013, Discovery Health Medical Scheme had 113 ALL claims out of about 731 000 claims for children up to the age of 19. Of these, the scheme paid out, on average, R113 089 per claim. There were three claims for other, rarer types of acute leukaemia in children, of the non-lymphoblastic type. These cost, on average, R826 274 to treat.
All the risk products surveyed here cover ALL, although some at only 50 percent of the sum assured. Some products cover rarer types at 100 percent. The Sanlam policy does not distinguish between leukaemia types, paying all cancers at 100 percent.
COVER IN CONTEXT
Critical illness and Injury cover for children must be regarded in the context of the other types of cover you either have or should consider, for your family, says Karen Bongers, product actuary at Sanlam. These are:
* Medical scheme cover, which pays towards medical expenses only. Bongers says that legislation stipulates that risk benefits such as critical illness cover cannot include medical scheme cover.
* Gap cover. This covers your shortfall in medical expenses, but typically for in-hospital events only. Again, by law, risk benefits cannot include gap cover.
* Funeral cover, which pays a lump sum on the death of your child.
* Congenital disease cover for your unborn child, which pays a lump sum if your child is born with a condition such as Down’s Syndrome or a cleft palate. Bongers says child critical illness benefits typically exclude congenital conditions, because including them would make the benefit too costly and would force people who already have children to pay for something they can never claim on.
INSURING CHILDREN: MORAL ISSUES
Why does assurance specifically for children not feature more prominently on life companies’ radar screens? It might be that there is not a big demand for such cover.
But could there also be an underlying moral aversion to insuring children?
Looking at the history of life assurance in the United States, there have been several cases of the murder of children by their parents in which the motive has been a policy payout. Most recently, Justin Ross Harris of Georgia has been accused of deliberately letting his 22-month-old son, Cooper, bake to death in his scorching SUV in June 2014. He had cover of $27 000 on the child’s life.
Some jurisdictions, including South Africa, place limitations on life cover for children. The Long Term Insurance Act limits policy benefits in the event of the death of an unborn child or a child under the age of six to R10 000 and of a child under the age of 14 to R30 000, or to the total amount you have paid in premiums on the policy.
However, there is nothing in the Act that deals with injury and illness cover for children.
Ryan Chegwidden, the actuarial head at assurer Altrisk, says that tailor-made children’s cover has no higher risk than any other type of assurance policy. He says that, in his years at Altrisk, he has not come across a single case that has raised concerns. He says it would be reasonable to be cautious about certain injuries, such as head injuries, that could be inflicted by an adult, but, in his experience, most claims are for conditions such as cancers and heart conditions, and cash payouts “certainly do assist with funding the life-saving treatment the child requires”.