Children's life insurance riders are endorsements to life insurance policies that allow for a small additional amount of insurance to a parent's policy. Often Child Riders are the cheapest and least expensive way to insure a children. Whether or not to insure a child's life is a hotly debated subject.
Children's Life Insurance Rider:
A rider added to a parents policy to include their legal children for a limited amount of life insurance coverage on the children's life - is a called a Children's Life Insurance Rider. These often go by the names of Child Rider or Kiddie Endorsement. Not all insurer's offer this option.
One important understanding to Children's Life Riders is that the coverage afforded is usually far lower than the parents coverage. Therefore the child rider will list a separate coverage amount.
Child Life Riders typically insure ALL children in the home and not just one specific offspring.
There is another way to purchase insurance for children which is for the child to purchase Children's Life Insurance Policies, which are policies that are just for the individual child. These policies are generally much more expensive.
What is a Rider?
"Usually known as an Endorsement, a rider is an amendment to the policy used to add or delete coverage." This is the definition from the California Department of Insurance.
Riders are typically added to the policy at inception. However it may be possible in certain situations with certain carriers to add certain riders at a later time, contract depending. (Ask your agent.)
Rider Vs Endorsement:
In the world of life insurance the word Rider is more often used. In the world of property and casualty insurance the term usually used is Endorsement. This is not to say that if you request an endorsement that you will not be understood, but the term endorsement may have less duration in its' meaning.
How do Children's Life Riders Work?
Most life insurance policies now have children's life insurance riders. The process is fairly simple. When purchasing the parents life insurance, request this rider. Generally the policy will cover all of the children in the household, not just one or two. Some policies allow coverage on children up to ages 20 or 21. There are some minor differences here with various insurers.
You may be able to add the rider at a later time, depending on your insurer. (Ask your Agent.)
Children's Rider = Child Rider = Children's Life Rider
How do Children's Life Riders Get Calculated?
Child Riders are calculated in allotments of $1,000. The insurer merely multiplies the amount of 1000s in coverage you want by their formulaic Cost Per Unit. This cost per unit is an insurer's specific number.
Number of Units of $1,000 in Coverage X Cost per Unit = Total Cost for Child Rider
Oddly enough most child riders cover all of the child members and cost the same for a family of four children as a family of two children.
The specific Cost per Unit 'cost' variances between the insurers is generally publicly known. However sharing this information is of dubious value since the most important coverage cost is the parents policy.
The Benefits of Child Life Riders:
There are a few benefits or positives to child life riders:
Keep in mind that these benefits are based on the idea that a family actually needs the insurance on the children. If they do not, it may be hard to characterize these are positives.
The Drawbacks of Child Life Riders:
There are also numerous drawbacks or negatives to these Kiddie Riders:
There are actually quite a few more negatives. The reality is that most people might do best to withhold buying kiddie policy and instead just invest the money in a child's 529 account.
Children's Life Rider vs 529 Account:
We have stated that we believe that putting money into a 529 account may be a better use of your money than buying either a Children's Rider or a Separate Whole Life Policy, but what do those numbers look like? We assume that a family takes out a $25,000 children's rider and pays out about $180 per year from about six months old until age 20 and 1/2. Twenty years of paying out this amount cost $3,600 for one child. (Keep in mind that the Child Rider is a far better deal than the Child Whole Life Option.)
$3,600 per child for insurance?
As opposed to investing that $180 each year for 20 years. If the rate of return is compounded 12 times per year with a rate of 7.0% than after twenty years you might have over $8,500. If it is invested in a 529 account and used for college purposes, there are no income taxes.
Therefore for a family that has one child does it make more sense to plan and invest to have $8,500 in a 529 account or $25,000 in insurance?
$8,500 after Investment Return?
Statistically speaking there is not a high chance of youth deaths in the United States. According to Child Trends, there are 51 deaths per 10,000 for ages 15-19, 25 deaths per 10,000 for ages 1-4, and 13 deaths per 10,000 for ages 5-14. This would seem to indicate a gruesome .5% chance of an untimely death during adolescent.
Compare this with the Bureau of Labor and Statistics which states that "66.7 percent of 2017 High School Graduates ages 16-24 were enrolled in colleges and universities..."
.5% Vs 66% ?
0 for College Vs $8,500 for College?
Of course this is singleton consideration. Meaning with just one child. The numbers do change for larger and really large families. In those situations, say ten children, a different outcome might be expected.
Are you suggesting that we not Buy a Child Rider?
Does it feel odd coming to an insurance agent's website only to be told that you probably do not need something he or she sells? It shouldn't. In Fact I suggest other forms of insurance to people all the time that come to my site looking for something else.
I would rather you use your extra money to bulk up on Term Insurance for both the parents. Secondarily use the money for a 529 account. (Which we do not sell.)
What is the Best Reason to Buy a Child's Life Insurance Rider?
The best reason to consider a child 's life rider is peace of mind and to allow the working parents (who cannot afford it) to take time off of work. If however you already have $10,000 or $25,000 in savings, I cannot see the financial value of these products pretty much at all.
Do you believe that Child Riders are better than True Child Whole Life Policies?
Yes, we believe that the child riders far surpass child kiddie whole life policies. The costs for whole life insurance for children is outrageous. That being said I still do not see the value for either of them if you have $10,000 saved up in any account.
Why are you the only Agent saying that I may not need this?
The principle of this site, whole vs term life insurance, is to run the numbers, share with you our opinion, and let our clients make up their own mind. In this short article we have shown you the costs, shared our opinion, and provided you with evidence that child riders may feel good but that they make little if any statistical sense. Your child may be over 100 times more likely to go to college than to die. We believe that this number is just so skewed that is makes no sense to consider it, if you have a small amount of savings.
Thanks for Reading our Post.
sales @ marindependent .com