Life insurance for special needs children

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Parents of special needs children are not only vulnerable to emotional hardships but also financial challenges. The functional needs of these children can warrant lifelong support and assistance, making sufficient funds a necessity. While no one wants to think about losing a child, having a life insurance policy on your special needs child could be beneficial if the unthinkable happens. However, buying life insurance for children is not as commonplace as it is for adults, so the decision requires careful thought and planning.

Life insurance for your special needs child

Generally, life insurance is meant to act as a replacement for lost income or to pay debts after death, while also providing financial support to the beneficiaries of the insured. Since children are not income earners, buying life insurance on them is less common than it is for adults. But if you have a special needs child, life insurance can be a helpful tool.

Provide for funeral expenses

Funerals can be costly. No one wants to think about their child’s funeral expenses but planning ahead can save you stress if the worst happens. Life insurance policies pay a death benefit after the insured passes away. This can be hugely beneficial for parents, as the death benefit could cover funeral expenses and also allow time to grieve without worrying about money.

Protect the child’s insurability

When a special needs child grows up, their medical issues might make it difficult or impossible for them to get life insurance coverage. If a policy can be found, it could be costly. Purchasing permanent life insurance for your child at a young age, if it is available, could help ensure that they are able to stay covered as they grow up. In fact, newborns may be automatically eligible for coverage up to a certain age, so getting coverage while your child is a baby could be a good purchase.

Life insurance for parents

Life insurance for special needs children may be less common than it is for adults, but coverage options do exist. You could purchase permanent life insurance, which lasts for your child’s entire life, provided the premiums are paid. You could also consider making your child a beneficiary on your own policy, but insurance companies may have regulations about listing a minor as the beneficiary (you may need to establish a trust, for example). And while the cost of life insurance for children is generally lower than it is for adults, that may not be the case for children with medical complications.

Child rider

If you aren’t able to buy a policy for your child, a child rider could be a good option. This is an addition to your own life insurance policy, where you include your child for an extra cost. The coverage amount varies but is usually relatively low, often no higher than $25,000. Some companies also give you the choice to convert the rider to a permanent policy upon its expiration. If your current life insurance company doesn’t offer a child rider, you could consider switching companies to a carrier that does have this option.

Special needs trust

If your adult child is unable to manage their own finances, a special needs trust can be a good option. This is also known as supplemental needs trust and is meant for estate and insurance beneficiaries who cannot take care of their own funds. You likely need to work with a lawyer to design the trust and provide specifications on how the money should be used. You also need to assign a trustee and a co-trustee to manage the funds. Having the trust set up before getting a life insurance quote and purchasing a policy is not essential since you can change the beneficiaries at any time.

How much life insurance do I need for my special needs child?

The amount of life insurance coverage you might need depends on a number of factors. You may want to think about potential funeral costs, funds for you to live on while you grieve and potential financial gifts you may want to leave to anyone important in your child’s life. If you are unsure how much coverage you should purchase, a life insurance agent should be able to help you with the calculations.

Frequently asked questions

Can I make my special needs child as my life insurance beneficiary?

Maybe. Some states and insurance companies have laws and regulations about minors being beneficiaries and won’t allow it, but there are ways you may be able to leave your financial gift to a child. You could name your child’s legal guardian as the beneficiary, or you might choose to work with a lawyer to develop a trust.

What can I use a death benefit payout for?

There are no restrictions on how you use a death benefit payout. If you have a life insurance policy on your child and they pass away, you will receive the death benefit from the policy. You could use the money for funeral expenses, paying off bills, paying down debt or your everyday expenses.

What is a cash value policy?

Permanent life insurance policies, which include whole life and universal life, have a cash value component. The cash value in these policies grows with interest and provides living benefits, or aspects of a life insurance policy that can be used while the insured is still alive. You may be able to borrow against your cash value in the form of a loan. You might even be able to pull out the cash value without paying it back, although this will lower the death benefit.

Written by
Cynthia Widmayer
Insurance Contributor
Cynthia Widmayer has over two years of experience as a personal finance writer. She covers home, car and life insurance products for Bankrate, the Simple Dollar, and Coverage.com, among others.
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