Many people take out income protection or critical illness cover to safeguard their finances if they have to stop work due to illness. But a child’s serious illness can have an equally severe impact on your ability to work full-time. Would your insurance cover this too? Article by Nick Green

Most parents know the feeling of having to ask their boss for yet another unplanned day off because their child is unwell. Even though kids bounce back from most illnesses quickly, these childhood bugs can take weeks out of a working year, forcing a lot of parents to struggle into the office when they themselves are sick.

But if your child has been diagnosed with a more serious long-term condition, or has been badly injured, the situation can become very challenging indeed. In order to care for your sick child, you may need more time off work than your annual leave entitlement, and resort to large amounts of unpaid leave. In some cases, you may even have to quit your job. It may be the last thing on your mind if your child is seriously ill, but the question won’t go away: if your work is affected, how will you cope on a reduced income?

Critical illness cover for children

You may already have planned for the risk that yourself might be prevented from working due to illness or injury. Critical illness cover and income protection are two different solutions to this problem, with critical illness cover paying out a lump sum and income protection paying a regular income for qualifying conditions. Either or both can be very useful – but what people often fail to grasp until they have children is that a child’s illness can affect their ability to earn almost as much as being ill themselves, and in some cases even more so.

Having a child with a long-term illness may require you to be at home with them most or even all of the time, and may also require regular hospital trips. Working from home is often a possibility, but given the emotional stress involved many parents in this situation find they cannot give their job the attention it needs.

Fortunately, many insurance companies are now alert to this issue, and build cover for children into some of their protection packages. Alan Knowles is a managing director of the Special Risks Bureau,  a high risk insurance firm. He explains, ‘Most critical illness policies come with children's critical illness cover built in as standard now. Some insurers like Aviva and Royal London have also released enhanced versions that provide more comprehensive cover for children. Vitality have an option to bolt on children’s cover at a higher level, and you can add this onto life-only cover for yourself.’

Critical illness cover for children has evolved significantly in recent years, most notably to include many child-specific illnesses. According to Tom Conner, director of Drewberry Insurance, ‘For an enhanced premium you can find policies that specifically cover children for conditions such as cystic fibrosis, hydrocephaly, Down’s syndrome and muscular dystrophy. With non-enhanced plans, however, the adult definitions may apply, so the child may not be covered. Of course, if you don’t want the children’s cover at all, you may be able to take it off for a reduced premium.’

Income protection options when your child is ill

Critical illness cover pays out a lump sum, which can go some way towards covering a short-term loss of income. But if you’ve had to take an indefinite career break, a steadier income stream may be more desirable. Unfortunately the options here are more limited, Alan warns. ‘There are some providers who will pay up to 12 months’ income if a spouse or child has an illness which results in them being unable to perform a number of daily activities. However, this isn't marketed anywhere near as much as children’s critical illness cover. It’s more common to see short term Accident, Sickness and Unemployment policies that include a carer’s benefit.’

As well as being limited to 12 months’ income, such policies also limit the value of the claims you can make (usually to a maximum £1,500 a month). The sick child (or partner) must also meet rigid medical criteria, usually the ‘Activities of Daily Living’ definition of incapacity. In other words, it may not be enough if you simply can’t work because your child’s illness has put you under too much strain.

Tom hints that we may see greater choice in this area in future. ‘Providers are gradually waking up to the realities of the financial strain a sick child can bring. Currently only three offer carer benefits as standard on their policies (Aviva, AIG and British Friendly). Given that 2 in 5 Brits say they have less than £1,000 in cash savings to fall back on in the event of such an emergency, this can be a very valuable supplement to income at a difficult time.’

Tom continues, ‘The good news is that the market for children's cover is developing rapidly. That said, this can make it difficult for parents to keep up with what is available and find the most appropriate cover for themselves and their families. This makes it all the more important to use a financial adviser who knows the ins and outs of these products. At Drewberry we use specialist software to compare critical illness plans based on the likelihood of a payout, given the client’s demographic.’

Covering your child for a critical illness requires facing that possibility, which is something no parent wants to do. However, given the high quality of NHS care for children, it makes just as much sense as taking out private healthcare for them – which many parents do. As Alan points out, ‘The financial impact of caring for a family member can be just as great a strain on household finances as being long-term sick yourself. This kind of insurance offers a benefit you hope you never have to use, but if you do, it can be truly invaluable.’

Nick Green is communications manager at Unbiased, the UK's favourite place to find advice you can trust. He has been writing professionally on finance, business and many other topics for over 15 years.