If you’re a parent, you’ll want to ensure that your loved ones are well-protected, especially after you’re gone. This is especially true if you’re a parent of a disabled son or daughter.
One of the most popular ways to ensure your child’s future well-being is by buying insurance. But as a parent of a special needs child, you may need to put extra effort into your insurance shopping to ensure that they have all of their needs covered even after you pass away.
In this guide, we’ll discuss the essential things you need to know about life insurance for children with special needs. We’ll explain the best options for protecting them, how to plan for your child’s insurance, as well as how to maximize their protection with government assistance and trusts.
Why Do I Need Insurance For My Special Needs Children?
One of the most common reasons people buy life insurance is to protect their family members. When you die, the death benefit paid out to them can cover their financial and material needs – lessening the blow of losing you.
Parents with a special needs child have plenty of financial obligations. In addition to living costs, your child might require therapy, SPED schooling, medication, special equipment, and other necessities. If you die without insurance, your child may not be able to cover all of these on their own, especially if their disability prevents them from working.
It’s not only parents who need to be insured – but you can also insure your child with special needs. The truth is that disabled children are statistically more likely to die early deaths. By buying insurance for a disabled child, you can lessen the financial impact of losing your child. An insurance payout can cover leftover medical bills, funeral costs, and any wages lost if you had to quit your job to become a full-time caregiver.
Types Of Life Insurance For Special Needs Children
To protect your child with special needs, you have to be insured. These are the most common life insurance options you can choose from.
Term Life Insurance
A term life insurance policy protects you for a limited period, usually ranging from 10 to 30 years. If you die within the insurance term, the life insurance company will pay the death benefit to your beneficiaries. However, if you die after the term has expired, they'll get nothing.
Many parents get term insurance that expires after their children turn 18. However, disabled children may need care well into adulthood, especially since their disability may prevent them from working and becoming financially independent.
Due to the limited life insurance coverage period, a term policy may not be the best choice for many parents with disabled children. However, this option may still be worth considering if your child’s condition doesn’t hinder them from gaining employment.
Whole Life Insurance
Whole life insurance protects you until your death. As long as premiums are paid to keep the life insurance policy active, your beneficiaries may receive the death benefit.
Because of its lifelong coverage, permanent life insurance is a good choice to protect your special needs child. Regardless of when you die, your child will get the money they need to pay their living and care costs.
As an extra benefit, whole life policies also feature a cash value component that builds up as you pay premiums. You can borrow from this cash value to help pay for your child’s care if necessary.
Survivorship Life Insurance
Another option to protect your child is survivorship life insurance, also known as second-to-die joint life insurance. For this policy to pay out, both policyholders – commonly you and your spouse – must pass away first. Because the payout only comes after the second policy owner dies, these policies often come with lower rates compared to whole life policies.
Supplemental Protection For Your Child
In addition to the aforementioned policies, you can protect your family even more with these insurance products and services.
Children’s Whole Life Insurance
A children’s whole life insurance policy is a permanent policy with a smaller amount of coverage. These life insurance policies are designed to cover funeral expenses, affording parents more time to grieve without having to worry about bills.
Additionally, a children’s life insurance policy can keep your child insured well into adulthood. Some children’s policies can be converted into a permanent policy once the child turns 25. Because disabled children are harder to insure as adults, having this policy as a child can help ensure that they have coverage throughout their life.
Child Protection Rider
Riders are extra features that you can add to your insurance policy to customize your protection. A child protection rider is a more affordable option compared to children’s insurance, offering a small death benefit in exchange for higher premium payments. Similar to a child policy, some insurance companies also offer the option to convert the child rider into a whole life policy.
Government Assistance Programs
If you can’t get enough coverage through a life insurance company, you can check out government programs. The government, through the Social Security Administration, offers Supplemental Security Income (SSI) to disabled people. The SSI is a means-tested program that can benefit any disabled person, regardless of work history. In addition to a monthly payment, the SSI beneficiary also receives Medicaid benefits and food stamps.
However, SSI has very strict asset limits. If an SSI beneficiary has over $2,000 in assets, they’ll stop being eligible for its benefits. Assets include any insurance payout they get after you die. If you want your children to be an SSI beneficiary, you need to manage their assets so they don’t exceed the SSI limit.
Protecting Your Special Needs Children With Trusts
To ensure that your death benefit is properly managed, you can consider a special needs trust. Also called a supplemental needs trust, these are designed specifically for life insurance beneficiaries who cannot handle their own finances, such as a special needs child. A trust can also ensure that your child can access your death benefit immediately rather than tying your money up in probate.
In a supplemental needs trust, you must name a trustee who will manage the money for your child. The trustee should follow your instructions on how the funds are to be used and disbursed. You can also name a co-trustee to ensure that the main trustee uses the funds according to your wishes.
By placing your assets in a trust, you can also ensure your child remains eligible for government benefits. Because your trust’s contents do not count toward your child’s assets, they’ll be able to qualify for programs like Medicaid and SSI.
A special needs trust can also be used as a savings account for your children. In addition to your insurance benefit, you and your relatives can deposit to the trust, increasing your child’s inheritance.
Life Insurance Planning Tips To Protect Your Special Needs Child
Insurance planning for your special needs child can be difficult, especially if you don’t know how or where to start. In this section, we’ll share some tips that can make this process easier.
Evaluate Your Child’s Needs
Your child’s special needs are unique, and the level of financial assistance they’ll need may vary. First, take into account their basic necessities such as food and housing. Then, factor in the other requirements of their health conditions. This could include therapy, medication, special schooling, and the services of a caregiver.
Estimate Current And Future Costs
Once you have their needs accounted for, you should calculate how much money they’ll need to live comfortably. Consider current costs as well as any future lifetime care expenses. For example, you may have to set aside money for their higher education or surgery.
Consider All Available Options
Different insurance policies work for different situations and people. For example, a whole life policy may provide the most insurance coverage, but it may be prohibitively expensive for some. If you opt for a survivorship policy, you should take into account how the surviving spouse will shoulder your child’s care costs alone.
Because every family situation is unique, you should research all the options available to you, then choose which one provides the most protection for your family.
The entire process can be daunting and stressful, especially if you do it alone. You can enlist the help of professionals to make the process easier. With their experience, a life insurance agent can help you pick the best type of insurance that fits your family’s situation.
You can also get the help of a doctor or a social worker who knows your child’s condition in detail. They can help you accurately identify your child’s current and future needs, which can help you decide on the right amount of coverage.
To help with your estate planning, you can consult with financial planners. Some financial planners specialize in security plans for special needs children.
As parents of a disabled child, providing long-term financial protection can be a difficult task. However, there are many options that can help you achieve your goals.
In addition to insurance, you can also get government assistance to help with your child’s living costs. Another option is to use a special needs trust. To help arrange for your child’s protection plan, make sure to enlist the help of a financial advisor and other professionals.
Wesley Insurance, LLC is here to help you plan for your special needs child! Our team can advise you on how to ensure that your child stays financially protected, even after you pass away. Contact us today for more information!