The child protection rider (CPR) is additional insurance added to your original whole life insurance policy that provides coverage for your child in case of death. But that’s not all it’s good for. In this article, we’ll explain the benefits of a child protection rider, costs and underwriting requirements, and show how it differs from a whole life insurance policy for a child.
Death Benefit vs. Living Benefits
Many life insurance agents who speak about the child insurance rider do so by explaining to parents that all emotions must be set aside when choosing to buy. Most people don’t like the thought of outliving their children, but this rider does more than insure payment at the time of a child’s death, it provides living benefits for your child. Here’s the difference:
Death Benefit
If your child passes away before adulthood and your whole life insurance policy has a child protection rider, your insurance company will pay out a death benefit to you. Many families in this unfortunate situation use the death benefit to pay for outstanding medical bills, funeral costs, or to cover time off work to allow the family to grieve. How you choose to spend a death benefit is up to you, but with funeral costs averaging in the $10,000–$20,000 dollar range, the primary function of a child protection rider is to cover lost income in the event of an untimely death of a child.
Living Benefits
Fortunately, most children outlive their parents and you won’t need the death benefit of a child protection rider. So why buy one? When your child reaches adulthood, they may be eligible for a permanent whole life insurance policy without a medical exam, all but guaranteeing their future insurability at a guaranteed, locked-in rate. Typically, they will qualify for 3 to 5 times the face value of their child protection rider, so if you have a $25,000 child protection rider, your adult child may be eligible for a $75,000–$125,000 whole life insurance policy without a medical exam.
Why is this such a big deal? For one, no one knows what their health will be in the future. A child protection rider may offer a type of guaranteed insurability for your child at more affordable pricing. Second, whole life insurance policies come with a number of living benefits not found in other types of insurance, including a built-in savings component called cash value.
Whole life insurance policies from mutual insurance companies earn guaranteed interest and potential dividends, which grow the cash value of the policy over time. This growth of cash value is tax advantaged and may be borrowed in the form of a policy loan for any expense the policyholder chooses. For your adult child, a policy loan can be a tax-advantaged, low-interest alternative to expensive student loans. It could also be used as a downpayment on their first home. And it can take the place of emergency savings, creating a solid financial foundation for your child and their future family.
FAQs About the Child Protection Rider
A child protection rider isn’t the same as a whole life insurance policy for a child. There are a number of key differences to consider before deciding which type of coverage to choose for your family.
How much does it cost?
A child protection rider is added onto your insurance policy premium at a nominal cost. Riders typically are purchased in $5,000 increments, up to $25,000, and premiums may be as little as $50 a year. Generally, for each $1,000 of insurance, your premium will go up $5, but rates vary between insurance companies.
How does this compare to whole life insurance?
Whole life insurance for a child also varies in cost but on a much more expensive scale. By comparison, a child protection rider functions more like term life insurance, which is why it’s less expensive. The main difference between term life insurance for an adult and term life insurance in the form of a child protection rider for your children is that at the end of the term, you have the option to convert the rider to a permanent policy. With regular term insurance, you typically forfeit any benefit once the policy’s term has expired.
How long is my child insured for?
A child protection rider insures your child until they reach adulthood—a definition that varies between insurance companies. Typically, insured children over the age of 25 are considered adults in the insurance world.
Once your child reaches adulthood (as defined by your insurance company), you’ll need to decide if you’re going to pursue a permanent whole life insurance policy for your child. They will have to take on premium payments moving forward, so make sure they understand the financial implications of owning life insurance. While whole life offers many living benefits, if your child isn’t prepared to take on the financial responsibility, a permanent policy may not be the best choice.
How does this compare to whole life insurance?
Whole life insurance policies insure the policyholder for the duration of their life as long as premium payments are made. Once your child is grown, you can transfer the policy to him/her or set your family’s policies up in trusts.
Do I need a child protection rider for each of my children?
One of the greatest features of a child protection rider is that one rider will cover all your current and future children. This includes biological children, adopted children, and step-children (but not grandchildren). Even if you don’t have children now, but plan to in the future, it’s worth speaking with your Wealth Strategist and exploring your options.
Once your children are grown, they each may have the option of owning a permanent whole life insurance policy without the need for additional medical exams, typically 3 to 5 times the face value of the child protection rider.
How does this compare to whole life insurance?
If you decide that whole life insurance policies are the preferred route for your family, you’ll need separate policies for each child. If you have a larger family, it might be more economical to opt for a child protection rider.
My child has a medical condition. Will he/she qualify?
A preexisting condition may prevent your child from being insured by a child protection rider, or it might not. It depends on your insurance company. Although your child typically won’t have to take a medical exam to qualify, your insurance company may ask questions about a child’s medical history. This is another reason why it makes sense to get this rider before you have more children. A child protection rider will insure babies as young as 2 weeks old.
It’s worth noting that although a child protection rider will cover children into their twenties, you cannot add the rider onto your insurance policy for any children older than 18 (and in some cases, 17). Also, not all states offer child protection riders. If this is the case, whole life insurance policies for your children may be the best option. Paradigm Life Wealth Strategists work with clients in all 50 states; if a child protection rider isn’t offered where you live, we can help you find the coverage your family needs.
How does this compare to whole life insurance:
Just like with a child protection rider, a preexisting condition may make it more difficult for your child to qualify for a whole life insurance policy. That said, medical exams are often not required. Rather, insurance companies may ask you questions about your children’s health history. With whole life insurance policies, it tends to be less a question of insurable or uninsurable—which is the case with a child protection rider—and more about insurable at X premium rate.
I already have a whole life insurance policy. Can I add a child protection rider?
Usually a child protection rider is added onto a policy at the time of its inception, but it’s not impossible to add a rider onto a policy in force. One exception is if you’re over 65. Most insurance companies terminate child term riders if the policyholder is 65 or older, regardless of the age of the child. If you already have a whole life insurance policy and would like to add a child protection rider, speak with your insurance company or schedule a free consultation with a Wealth Strategist to explore your options.
How does this compare to whole life insurance?
Because a whole life insurance policy for a child is a separate policy from your own, you can take one out at any time. Compared to the underwriting requirements for adult insurance policies, it’s a fairly simple process. Speak with a Wealth Strategist for details.
Do I really need insurance for my child?
There are a lot of insurance riders to choose from when building your customized wealth strategy and more than one way to protect your family. Given how affordable a child protection rider is and the fact that it may guarantee your children future insurability at a great rate, it makes sense for most families. With annual premiums as little as $50 a year, it’s just a few extra dollars a month to give your family peace of mind and set your children up with a solid financial foundation for their future.
When does it make sense to choose a whole life insurance policy for a child?
Sometimes, a whole life insurance policy is better for a child than a child protection rider. Both offer a death benefit if a child dies before reaching adulthood, but the living benefits differ in regards to how cash value accumulates.
With a child protection rider, once your child reaches adulthood they are eligible for a permanent whole life insurance policy with a face value of 3 to 5 times the value of your rider. This policy will earn a guaranteed interest rate and potential dividends, building up cash value, but it won’t have cash value accumulated at the time of conversion.
With whole life insurance for a child the policy earns guaranteed interest and potential dividends throughout the life of the child. Once adulthood is reached, their policy will have accumulated more cash value that is ready to be accessed in the form of policy loans for down payments, tuition, investment opportunities, etc.
Essentially, you pay less over the life of your insurance policy with a child protection rider but your child will have to begin earning cash value once they reach adulthood, potentially delaying some of the living benefits of whole life insurance. On the other hand, you’ll pay more in premiums over the life of a whole life insurance policy for a child, but their policy will have accumulated a good amount of cash value by the time your child reaches adulthood.
The decision to choose whole life vs. a child protection rider depends on your financial goals, your budget and how you and your family plan to use your insurance policies.
The Child Protection Rider At-a-Glance
- One premium for all children
- Low-cost premium
- Converts to a permanent policy
- Nominal medical underwriting
- Death benefit for funeral/medical costs
- Living benefits into adulthood
If you as a policyholder are using your life insurance to grow wealth and leave a family legacy, then purchasing the child protection rider is a simple and efficient way to gift your children a permanent life insurance policy.
When your child reaches adulthood and you convert the child protection rider into their own policy, they can start to personally reap the same infinite banking benefits that you used yourself. The goal is to give not only a life insurance policy to your children, but more importantly the gift of a financial education that can be passed down through many generations.
