This rider allows you to include multiple children in your life insurance policy, usually for an extra charge.
What is a child term rider?
A child term rider is an add-on to a life insurance policy that provides a benefit if a covered child passes away while the policy is active. This rider typically covers all children in the insured’s family, including biological, legally adopted, and stepchildren. It is available with both term life insurance and permanent life insurance policies.
The payout is usually limited, often to amounts like $25,000 or less. While this sum may seem modest, it can assist parents coping with expenses such as funeral costs, medical bills, and lost income due to time off work after a tragic loss.
Coverage under a child term rider generally begins when the child is at least 15 days old and typically ends between ages 18 and 25, or upon marriage. Most policies do not require the child to undergo a medical exam, but basic health questions may be asked.
Adding a child term rider typically increases the monthly premium by only a few dollars, regardless of the number of children covered. This option is considerably less expensive than purchasing a separate life insurance policy for each child, though the death benefit is typically smaller.
Many insurance providers offer the option to convert the rider into a standalone permanent policy when the child reaches a specified age, although this conversion feature usually comes at an additional cost. The amount of coverage available for conversion can vary; for instance, insurers may limit it to a policy value up to five times the original rider’s face value.
Understanding the Difference Between a Child Rider and Child Life Insurance
When you add a children’s term rider to your life insurance policy, you’re securing temporary coverage for your child. This applies whether your main policy is term life insurance, which lasts for a specified period like 20 years, or permanent life insurance. The child rider remains active only until the child reaches the coverage age limit, typically around 25 years old. According to Dane Spealman, an agent at State Farm in Pikesville, Maryland, this rider offers a cost-effective alternative, typically one-fourth the cost of a separate child life insurance policy.
Understanding the Cost of a Child Term Rider
A child term rider typically increases your policy premium by $5 to $7 per $1,000 of coverage annually.
For example, if your base rate is $5 per $1,000 and you opt for a $15,000 child term rider, your yearly cost would be approximately $75, or about $6.25 per month. Similarly, a $25,000 rider at $7 per $1,000 would amount to $175 annually, approximately $14.58 per month.
Benefits of Adding a Child Term Rider
There are compelling reasons to consider adding a children’s term rider to your life insurance policy:
- Affordability: “It’s very economical,” remarks Pemberton. For instance, parents holding a Nationwide term life or whole life policy can secure a $25,000 death benefit for their child at just $10.94 monthly. Those with universal life insurance would pay slightly less, about $10.75 per month.
- Financial Preparedness: While the likelihood of a child’s death is remote, a children’s term rider provides crucial financial preparation for unforeseen circumstances. “No one wants to face the financial burden of funeral expenses,” adds Spealman, emphasizing the practicality of this coverage.
Considerations Regarding Children’s Term Life Insurance Riders
While the affordability of children’s term riders offers a practical way to prepare for unexpected events, there are several limitations and drawbacks to keep in mind before incorporating one into your life insurance policy.
- Limited Coverage Amount: Typically capped at $25,000 per child, these riders may cover funeral expenses, which average around $8,300 according to the National Funeral Directors Association. However, this amount might not suffice for outstanding medical bills or to replace parental income if time off is needed to grieve.
- Potential Early Termination: Coverage under children’s term riders often extends until the child reaches age 25. However, termination conditions can vary based on the parent’s age and policy terms. For instance, some insurers may terminate coverage when the policyholder parent reaches age 65 or even earlier, potentially leaving children uninsured before they reach adulthood.
- Limited Conversion Options: If children wish to convert a term rider to their own policy, the amount they can obtain is restricted. For instance, Nationwide allows conversion to a whole life policy equal to the rider’s face amount (up to $25,000), while State Farm permits conversion to an individual policy with coverage up to five times the rider amount (up to $100,000).
- Costly Conversion to Permanent Policy: Converting a term rider to a permanent policy can be expensive, as the new policy is typically issued at standard risk rates without the favorable terms of preferred or super preferred risk classes. Healthy individuals might find it more advantageous to apply for standalone coverage with full underwriting.
- Lack of Automatic Termination Notification: Insurance companies may not automatically cease charging for a rider once the child surpasses the maximum coverage age (e.g., 22 or 25). It’s essential to proactively inform the insurer to avoid unnecessary charges.
Considering these drawbacks alongside the benefits of children’s term riders can assist in determining whether this addition aligns with your life insurance strategy.
How to Obtain Life Insurance for Your Child
When considering life insurance coverage for children, you have two primary options: adding a child rider to your term life insurance policy or purchasing a standalone whole life insurance policy for your child.
Standalone child life insurance policies are less common due to their higher premiums. These policies fall under the category of whole life insurance, meaning they do not expire.
Alternatively, a child rider, also known as a child term rider or child insurance rider, offers coverage for all current and future children under one policy. This option is notably more affordable than purchasing a separate child life insurance policy.
Frequently Asked Question
What is a child term rider?
A child term rider is an optional addition to a parent’s life insurance policy that provides coverage for their children. It offers a death benefit if a covered child passes away while the rider is in effect.
What does a child term rider cover?
Typically, a child term rider covers all children in the insured’s family, including biological, adopted, and stepchildren. It provides financial protection in the event of a child’s death during the term of the rider.
How much does a child term rider cost?
The cost of a child term rider is relatively low, often adding between $5 to $7 per $1,000 of coverage per year to the parent’s life insurance premium. For example, a $25,000 rider might cost around $125 to $175 annually.
What are the benefits of a child term rider?
A child term rider offers affordable financial protection for unexpected circumstances, such as covering funeral expenses or medical bills in the event of a child’s death. It can also be converted into a standalone permanent policy as the child reaches adulthood.
Are there limitations to a child term rider?
Yes, there are limitations. Coverage amounts are typically capped (e.g., up to $25,000 per child), and the rider may terminate when the child reaches a certain age (e.g., 18 to 25 years old) or if the parent’s policy terminates. Conversion options to permanent policies may also have restrictions.
Conclusion
A child term rider in life insurance offers a cost-effective way for parents to secure financial protection for their children. It provides a death benefit if a covered child passes away during the term of the rider, typically covering all children in the family. While affordable, with premiums adding only a modest amount to the parent’s policy, there are important considerations such as coverage limits, potential termination conditions, and conversion options. Overall, a child term rider can be a valuable addition to a parent’s life insurance strategy, offering peace of mind in the face of unexpected circumstances.