Life insurance to protect your child with special needs |

Life insurance and special needs children

The right plan can offer security far into the future

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Parents of special needs children often double as caretakers – financially and physically – so it’s normal to be concerned with what’ll happen after you’re gone. Life insurance can be used as a tool to protect your child’s overall well-being, but it takes careful planning to make sure government aid isn’t jeopardized in the meantime.

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How life insurance is different when you have a child with special needs.

Most people purchase life insurance to help settle debts and take care of loved ones after they die. For parents of special needs children, that means putting a plan in place to support your child into adulthood and beyond. It’s a balancing act: your child needs access to the death benefit, but too much at once could disqualify them from receiving essential government support.

Why whole insurance could be right for you.

Whole insurance policies don’t ever expire, so your child will receive a lump sum payment when you die – guaranteed – as long as premiums are paid on time. Whole policies usually build cash value over time, and monthly payments remain the same. While a term policy might initially be cheaper than whole, after the term length ends the benefit ceases to exist.

What is graded life insurance?

Graded life insurance is designed for people who pose a higher risk to insurers. Parents may consider this as a way to insure children with special needs because it’s easier to apply and get approved, even with a complicated medical history.

These policies offer only a fraction of the death benefit if the policyholder passes away within the first two to four years of coverage. For example, 50% of the face amount of the policy would be paid after the second year and 75% after the third. Eventually, 100% of the benefit will be paid after the policyholder dies.

But keep in mind that premiums tend to be more expensive with graded life insurance.

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

Listing your special needs child as the beneficiary of your life insurance policy could render them ineligible for government aid. The government limits Supplemental Security Income (SSI) and Medicaid to individuals with a monthly income of $2,000 or less. So if the benefit pays more than that, it could cost your child their disability support.

Instead, consider sending the money straight to a special needs trust. That way, funds can be withdrawn as needed to take care of your child without disqualifying them from SSI benefits.

Getting a special needs trust

Also known as a supplemental needs trust, a special needs trust is specifically designed for individuals who require assistance handling their finances. You’ll leave specific instructions for how the money should be used, and appoint a trustee in charge of managing funds. A co-trustee, such as a lawyer or bank, can help make sure the money is used appropriately. Depending on your situation, a special needs trust can be the best of both worlds – giving your child access to the death benefit, plus government aid.

How to purchase life insurance

Though applying and underwriting timelines vary by provider, here’s what you can expect when buying life insurance:

  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 agent 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 information that includes your full name and address, date of birth, height and weight, employment information, 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 it 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 what you select when applying for the policy.

Bottom line

A life insurance policy can help provide for your child with special needs after you’ve passed away. But to protect the government benefits your child might receive, consider appointing a special needs trust as the beneficiary of your policy. Compare providers to find a good fit, then talk to your agent about your goals and concerns.

Frequently asked questions

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

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