Child Rider Buyer Beware!
That damn insurance agent, the one that can sell sand at the beach, is saying that the life Insurance Child Rider is one of the worst ways to insure your kids. Here are his reasons:
- Insurance on the child will lapse if the primary dies or stops paying
- It is dependent on the owner’s ability to qualify for insurance. If you are uninsurable you can not purchase a Child Rider.
- (this makes sense more for grand parents and divorcees)
- At age 21 the child is no longer insured, who is going to pay for his expenses if he dies?
- The insurance company will continue to take your money unless you tell them to stop.
- They don’t give refunds.
Don’t buy sand at the beach, and always make an informed decision on insurance.
Here is what you need to know about buying a Child Rider and the benefits in doing so.
Fact, A child rider is consider one of the the best riders for life insurance with good reason. It is an affordable way to insure children in the household. In other words, you can have a cackling gaggle of kids running around your household, all on single Child Rider at a cost of $5 per $1000 (1 unit) annually.
Before we dig deeper, Here are 8 reasons why to choose a child rider:
- Easy way to get insurance on your child
- No medical exam required on the child
- A Single Child Rider can typically cover all the kids in the family household. Each child would have a death benefit equal to the rider amount (for example: $10,000 child rider, child 1 through 8 would each be covered for 10k)
- It is truly inexpensive with coverage starting as slow as 4.17 per month for $10,000 (10 units)
- Coverage at 15 days of age up to age 25 with most carriers
- 5 times the convertibility (i.e. A $10,000 child rider can convert to an individual policy of $50,000)
- Insurance coverage can start as early as 15 days of age
- Many Financial Professionals advocate that this is the only way to purchase insurance on your child.
Almost a No Brainer
For several years know, a child rider has been championed as one of the best riders you can add to a Life insurance policy. This statement holds true if you have multiple children and want an easy way to provide protection. In a similar post, I share my own story on looking for Best Life Insurance Options for children. I found a very affordable children’s Term Insurance that work out a better value for my purchase.
What to expect from the insurance agent:
Most insurance agents quote $10,000 for coverage and suggest that it is an appropriate amount. I have found it bizarre that there is not a lot of thought behind this amount. I will be sure to ask that Damn Insurance Agent for his wisdom the next time I see him.
Why $10,000 for a Child Rider?
I don’t think anyone has ever done the math accurately, and few have calculated what is the exact amount needed to bury their child. Some articles claim that AARP estimates the cost to be $10,000 for the average funeral. It does not specify adult or minor. The average cost of a funeral is $6,500, according to the National Funeral Directors Association. With all things considered, I believe that $10,000 was an easy round number and the industry just ran with it.
Is There a Need for More Than $10,000
If you are self insurance, there is no reason to buy insurance. If you have a need, I can agree that $10,000 per child is a safe amount to consider, but there should be more thought in the coverage amount. The need may rise with medical expense, transport expenses, additional funeral celebration costs, and the like. Add in bereavement process and time away from work and these expenses can add up quickly.
Some argue that you should never profit from the death of a child and insurance on a child is bad purchase altogether. Whether or not you subscribe to this idea, having a solid plan for any untimely death can certainly provide peace of mind; it’s #1 Goal.
Bereavement Process, an Unknown Cost:
The challenge to any plan is the unknown, what we can not see as a possible threat. We all handle bereavement differently. When my brother passed, my parents needed to hit the reset button. They needed to get away from their daily grind and reroot their way of being. It took some time for them to get some pep back in their steps and reengage. Without a doubt, they are still morning even though it has been over 25 years since he was struck by lightning. Crazy!
I chose to get more than $10,000 in children’s insurance for the reason that I found a better deal than a Term Child Rider. The overall cost and value provides me with greater peace of mind.
Donate to Charity:
A family who purchased more insurance than needed can always find value. If you find yourself with this challenge, consider a donation to a charity, organization, or create a scholarship in the name of the child.
Non-Medical Application makes it easy
Most insurance policies on children do not require a medical exam. It is required that the parents complete and answer a few questions in addition to their age, Date of Birth and Social Security information.
Future children are eligible for coverage
Another benefit for of the Child Rider is that future kids are eligible for coverage. Coverage can start as early as 15 days after they are born. It is best practice to notify in writing the additional children to be covered. Some companies have a specific form for the additional children.
Blended Family Benefit
If you are the Brady Bunch of your block, this is a nice policy rider to have. The Child Rider covers all children in the household. This includes stepchildren, adopted, and the like. Again, all for one simple rider.
Policy vernacular will read “insured child” which means any Child, stepchild or legally adopted child of the insured.
Lets look into how a Child Rider really work
All policies have an option to add costly features, bells and whistles, called riders. The idea is that they are added benefits to your basic policy, aka add ons. Most of these “add on” do not provide great value. And example is the Double indemnity Rider which is more commonly known as Accidental death and dismemberment. Or the Waiver of Premium that will pay our policy if you become disabled (not worth the paper it is written on). Child Rider is by far my favorite rider and often the only one that addresses a real need, a death of a child.
These “add on” riders are added to the policy in units. One unit is equal to a thousand dollars. For child rider, It is most common to see 10 units, $10,000 in coverage. They can go as high as 25 units with most insurance companies.
Child Rider Units
As explained earlier, one single unit is equal to $1000. To purchase $10,000 would require the policy to have 10 child rider units. Child rider units go up to 25 with most insurance carriers. If you needed, that would be $25,000 in coverage for each of your munchkins.
Typically, when you children reach adult age they are eligible to convert the Child Rider to their own with a simple application. This is a guaranteed conversion and can increase coverage to 5 times the amount. Your Child Rider of $25,000 (25 units) can be converted to $125,000 without proof of insurability. This works well if a child develops a uninsurable illness or an illness that would cause their rates to be much higher due to their medical condition.
When there is No Coverage
For most Child Riders, there is no coverage for a child less than 15 days of age and the policy terminates coverage on the child one day after their 25 birthday. Seriously, they are covered on their 25th birthday but not the day after according to the provisions of the contract. Also, take note as a Child Rider may terminate sooner than age 25 depending on the company issuing the coverage.
Interesting Case Study
Let us review a true case study. One of the agents, a good old boy, who has a great deal of experience shared his success. A Term-mite (an endearing name for an agent who only sells Term Insurance) sold a policy to this family and did a great job of insuring the need of the main breadwinners, Mom and Dad had over a quarter of a million in death benefit to meet their need. They also purchased an Children’s Insurance Benefit Rider, a Child Rider. The original agent was long gone and did not have any follow up. This was an orphaned account, meaning the agent made the sale and did not have any connection with the family after his commission was paid. This is where my buddy, the good ol boy, saved the day.
He took some time interview the family and asked detailed questions about their experience with insurance. What he found was startling! He discovered they had lost a child in 2006. The family did not know that they had a child rider on their policy. Moreover, the term policy lapsed in 2012 at the end of the 30 year term. They figured all was lost.
The agent, being a great advocate was able to contact the insurance company, prove that the child rider was in force when the child’s death occurred. The insurance company paid the death claim with interest. Kudos for the insurance company and for the advocate agent.
Moral of the study: have a good understanding what you are purchasing and the reason for the insurance. Take time to review your policy annually to make sure it fits your goals.
So, Should you Buy a Child Rider?
Whether you purchase insurance or choose to ride without coverage, you need to have a plan that solves for your personal confidence. Some will advocate great value in being self insured and having money saved aside for things like a death of a child. Other feel comfort with a low cost child rider.
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Jose, Hoser, Joe from the show