Every parent wants to protect their children to the best of their ability. While the need for long-term insurance for an adult with a career, assets and responsibilities is well understood, few parents consider the value of taking out insurance for older children, particularly those in their late teens and early twenties, to protect them against unforeseen incidents. This age group may not yet be wealthy in terms of assets, but they are ‘rich’ when you consider all their future pay cheques. However, there is a reason that car insurance premiums for young adults under 25 are higher than they are for somebody older – this is a high risk group. But what kind of cover should you be considering for your older children?
Permanent disability or incapacity
The most important insurance you should be considering is a permanent disability or incapacity benefit. In the unlikely event that your child becomes permanently incapacitated, parents and family members are required to assume financial responsibility for providing for the child for the rest of their lives. Expenses could include once-off costs such as modifying your home to accommodate a disabled person, specialised equipment, as well as ongoing monthly expenses for food, clothing, care giving and medical treatment.
Unless your child has financial dependents or significant debt in the form of a student or car loan there is no real need for life cover. However, the advantage to taking out life cover for a young child is that life cover is a whole of life benefit. By taking it out when your child is young and healthy they are guaranteed that there will be cover even if there is a deterioration in their health.
Statistically speaking there is a lower chance of a child suffering from a severe illness, but that said, there are no guarantees. Each year we see cancer and heart attacks dominate the claims paid out for this benefit although in fairness, this is primarily to older claimants. However, while cancer might be more prevalent in older age categories, the youth are not excluded.
Medical aids typically don’t cover the main costs associated with a dread disease such as the cost of a care giver, travel expenses to a rehabilitation centre, and adapting a home for somebody with special needs which means that it is a good idea to have some cover in place to protect against your child suffering from a severe illness. The best case scenario is that your child never claims on this benefit and can chose to continue with the cover when they become an adult. This is a need that remains no matter the life stage one finds themselves and will be needed for one’s whole life.
How to insure a child
Most insurers offer a “child care benefit’ linked to the insurance benefit taken out by the parent. There will be a maximum pay out in the event of claim. However, the child would need to suffer a very serious illness or injury in order to qualify for a claim.
Some insurers allow children from 15 to be comprehensively insured. The disability benefit is only measured against ‘impairment’ definitions as there are no occupational duties to claim against.
It’s time to shake off the perception that only the breadwinner needs disability and illness cover given that the well-being and health of every family member has an impact on household expenses. Speak to your financial advisor for the most appropriate cover for your child.
By Trevor Crouse, Private Wealth Manager at NFB Private Wealth Management