1. No, it doesn't cost more.
2. You can still have a KTTW card if you want it.
3. Your three-year-old won't have charging privileges, and I believe you can turn off the room key function on her band as well.
4. It won't come off on a ride. It's as secure as a watch. It's not a flimsy strap. It's made to withstand rides, swimming, recreation activities, etc.
5. If you keep a physical KTTW card, it will be RFID too. No more mag strip. The RFID is much more secure since it doesn't contain personal information, it merely accesses information on an outside server.
EDIT regarding security: You need a PIN to use touch-to-pay and a finger scan to get in a park, so even if someone stole your band they wouldn't be able to do anything.