Life insurance to protect your child with special needs | finder.com
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How to get life insurance to protect your child with special needs

Get peace of mind that your loved ones are cared for without jeopardizing government support.

As a parent, you strive to put your child first. But parents of children with special needs can face complex challenges and issues that other parents don’t.

Your responsibility to your child extends beyond their childhood and adolescent years into their adulthood. And proactively planning for the future means considering how they’ll manage after you’re no longer around to care for them.

Life insurance is one way for parents to ease the financial strain of ongoing care for their child with special needs so that they can live a long, happy life after you’re gone.

Factors to consider

While under normal circumstances, a person taking out a life insurance policy does so to help cover end-of-life or funeral expenses, outstanding debts and potential lost wages for family members.

If you are a parent to a child with special needs, life insurance can both cover your end-of-life expenses as well as ensure that your child’s future financial needs are met in your absence.

Depending on your needs, you can choose to insure one or both parents, assigning your death benefit to either your child as a one-time payout or to a special-needs trust that can provide continuing support for ongoing quality of life. This kind of trust can ensure that its beneficiary remains eligible for government programs like Supplemental Security Income (SSI) and Medicaid, regardless of the assets in that trust.

How life insurance works

Life insurance is a financial product you purchase through monthly premiums that pays out a lump sum or annuity after you die. Beneficiaries can use this money to cover funeral costs, a mortgage or outstanding debts, education and general living expenses.

Many banks, providers and brokers offer life insurance products, with term life and whole life two of the most common types. Term life insurance covers the policyholder within a specified term of 1 to 30 years, while whole life insurance covers the policyholder over their lifetime.

Once your life insurance policy is in place, you pay annual or monthly premiums on the policy until the policy term is up or until you die.

What is graded life insurance?

If you’re interested in taking out a life insurance policy that covers your child with special needs, rather than you personally, a graded life insurance policy might be worth exploring.

Graded life insurance is designed for those who typically struggle to meet life insurance eligibility criteria — like people who have a disability. They tend to come with higher premiums than traditional life insurance, but applying and approval can be easier.

Graded life insurance policies work by limiting the death benefit paid out if the policyholder passes away within the first two to four years of coverage, depending on the policy — for instance, 50% of the face amount of the policy in the second year and 75% of the face amount in the third.

After the policy is in effect for a specified period, the full death benefit is released when the policyholder passes away.

If you’re interested in graded life insurance, speak with an insurance professional about your specific needs to determine how your circumstances are considered in underwriting. Ultimately, decisions and rates depend on nuanced health information.

How to compare life insurance providers

When selecting a life insurance provider, weigh the factors below to ensure that you find the exact policy that meets your needs.

  • Financial stability. Life insurance is a lifelong product, so look for a provider with an established record of financial stability. Read the company’s history to learn how long it’s been in business and any growth projections for the future.
  • Industry ratings. Learn what customers online have to say about working with this provider. And check in with the Better Business Bureau and A.M. Best for an indication of its reputation.
  • Product range. Even the most reputable provider may not offer the type of coverage you’re looking for. Ask about eligibility before you apply.
  • Affordable premiums. Premiums are based on factors that include your age, current and past health and the type of coverage you need. But the provider you choose can also affect the amount you ultimately pay each month.
  • Customer support. Look for the flexibility of online chats, email, phone reps and in-person help. And learn whether the marketing matches the reality of customer experiences.

Is there anything to watch out for?

If you choose to apply for life insurance in your child’s name, you’ll likely need to complete a questionnaire disclosing their current and past medical conditions, potentially requiring tests to determine their level of intellectual functioning or physical disability.

Keep in mind that while you’re required to provide the information your provider requests, you’re not required to provide anything beyond that. Be honest and forthcoming in your responses, but answer only the questions they ask of you.

Is making my child the beneficiary of my life insurance policy a good idea?

It depends on your specific circumstances. Appointing your children as beneficiaries of your life insurance can help ensure that your loved ones are taken care of after you die.

But assigning your child with special needs as the beneficiary of your life insurance policy could backfire. If your child benefits from Supplemental Security Income (SSI), the payout of your insurance policy could cost your child their disability support, because the government limits SSI need to individuals with a monthly income of $2,000 or less.

You do have a tool to provide for your child with a life insurance payout while protecting their SSI benefits: By appointing a special-needs trust as the beneficiary of your policy instead of your child.

Starting a trust for your child and appointing the trust as your policy beneficiary typically ensures that your child can continue to benefit from government support while simultaneously receiving the benefit of your life insurance policy.

Life insurance brands to consider

GerberLincoln FinancialNorthwestern MutualPrudential FinancialNew York Life Insurance
Products offeredTerm, whole, guaranteed, accident protection, children’s, young adult, collegeTerm, universal, variable universalTerm, whole, universal, disability, long-term careTerm, universal, variable universalTerm, whole, long-term care
A.M. Best ratingAA+A++A+A++
Online application required?YesNoNoYesNo
Medical exam required?NoNoYesNoNo
Read reviewRead reviewRead reviewRead review

How to purchase life insurance

Though applying and underwriting can vary by provider, you’ll typically follow the same process from application to approval.

  1. Pick a policy type. Research your options to decide the type you’re after — term, whole or universal — and the features you’re most interested in.
  2. Compare providers. After you’ve decided on a policy type, narrow down potential providers. Ensure that your chosen provider carries the type of policy you want and can offer competitive premiums.
  3. Visit the provider. Some providers allow you to apply for a life insurance policy online. Others require you to meet with an agents over the phone or in person to start the application process.
  4. Complete your application. Whether online or in person, you’ll supply personal and lifestyle issues that include your full name and address, your date of birth, your height and weight, your employment information and annual income and your habits or hobbies.
  5. Complete a medical exam. Some providers require that you attend an in-person medical examination. Your agent will help schedule your exam at a time and place that’s convenient for you. During the exam, you’ll likely submit to a urine and blood test and a check of your height, weight, pulse and blood pressure.
  6. Await your results. An underwriter reviews your application and medical exam results before approving or denying your request for coverage. This process can take several days or several weeks, depending on your provider.

How do I exercise my policy’s benefits?

The death benefits of your life insurance policy are paid out after you die. A loved one or legal representative can file a claim to your life insurance provider accompanied by a death certificate.

Most providers release payment within 60 days of a claim filing. The payment is released to the beneficiary of the policy in fixed installments over a predetermined period of time or as a lump sum, depending on the option you select when applying for the policy.

Bottom line

Choosing a life insurance policy and provider under any circumstance can be complicated. But it’s often vital to safeguarding the future of your loved ones.

Providing for your child with special needs after you’ve passed away is one way a life insurance policy can help. But to protect the government benefits your child might receive, consider appointing a special-needs trust as the beneficiary of your policy. That way, you’ll know your child is protected to the full extent of their rights.

FAQs about life insurance for a special needs family member

These are some of the most frequently asked questions about this topic. If you still have questions, please get in touch with us.

Shannon Terrell

Shannon Terrell is a writer for finder.com who studied communications and English literature at the University of Toronto. On any given day, you can find her researching everything from equine financing and business loans to student debt refinancing and how to start a trust. She loves hot coffee, the smell of fresh books and discovering new ways to save her pennies.

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