Life Insurance for Children with Special Needs

Written by Rob Pinner

Being a parent to a special needs child is one of the most challenging yet rewarding jobs of our lifetime.

I know because I am the father to a beautiful son (pictured above) who has down syndrome. Watching our children struggle with the most basic aspects of life is difficult for any parent.

With that said, we also feel the greatest sense of pride when they do crush goals, reach milestones and surpass society expectations. For me, it’s the best feeling watching my son grow, even if it is at his rate and not mine.

A topic that is sensitive to all parents, not just parents of special needs kids, is whether to purchase life insurance on our children.

While it is common for parents to purchase life insurance policies for themselves to protect their children, many struggle with the idea of purchasing life insurance on their child.

Many parents think its “dark” to consider life insurance on our children, but the hard truth is that some children, special needs or not, do pre-decease us, and it’s always good to have a plan.

This can be a touchy subject when speaking about life insurance for special needs children because there is a chance we may live longer than our child with special needs.

This is something no parent ever wants to consider, but it is our reality.

It’s better to be prepared for this and it not happen than to not have an adequate game plan in the event of such a tragedy.

Also, at some point in our children’s life, which we hope is way beyond our death, they will need life insurance.

In this article, we will discuss the Life Insurance options for special needs children.  Although not always easy, but what is, there are avenues that can be taken to secure life insurance on our children with special needs.

Hopefully, the planning we do for our children now, will not come into play until later in their lives.

What are the Benefits?

If you are a parent or caregiver of a special needs child then you know the amount of time and effort goes into raising your child. This can mean that have left your job which means loss income, retirement savings, and even social security.

Even though it’s not pleasant to think about, life insurance can help pay for funeral expenses and make up for the lost income and retirement savings.

I understand how sick to your stomach these thoughts make you feel, remember I have a child with down syndrome, but it’s a fact that caring for our children is a great strain on our finances.

Another benefit is that we will have taken care of your child’s burial expenses even if they out live us, which is a hope we all carry.

Purchasing a life insurance policy now ensures your child’s caregivers won’t be burdened down the road with a rather large funeral bill.

What’s the Right Amount of Life Insurance

The purpose of the policy will determine the amount of life insurance you will want to secure on your child with special needs.

If the purpose of the policy is to cover the funeral expenses, they you will need minimal coverage. Somewhere between $8,000-$12,000 of coverage you suffice. A whole life policy would be the answer.

If you intend to use the policy as a way to replace lost income or retirement then you would require a larger amount of life insurance.

It’s important to speak to a professional to review all options for you and your child.

Be Honest, but Don’t Volunteer Information

You will always want to be truthful when filling out a life insurance application.  Answer all questions as accurately as possible.

With that being said, don’t over-share more health information than the insurance company asks for.

If they want additional information they will order it from your child’s doctor.

Don’t worry, this is not being dishonest. It’s allowing you to maximize your child’s chances of getting approved. No need to offer up information that the insurance carrier is not asking for.

Naming Child As Owner is Not a Good Idea

Naming your special needs child as the owner of their life insurance policy is a big mistake that you will want to avoid.

Our children with special needs usually receive some type of government assistance, such as Medicaid.

If they don’t qualify as children (because the parents make too much money), they will surely qualify when they turn 18 and become adults.

The federal assistance programs allow very little assets that our children can have in their name. A life insurance policy, especially with cash value, could result in higher assets and possible cancellation of government benefits.

This would have a negative impact for our child and whomever their caregiver is at the time.

Check out the Special Needs Alliance, whom is a non-profit organization, with help regarding government assistance programs for special needs children.

What are the options?

  1. Probably your best option is going to be if your child is under the age of 18, is to take out a policy on yourself and add the child rider. A child rider usually allows for up to $25,000 of coverage and some carriers are more liberal than others with their health questions. Since a child rider only lasts till your child is 25, you have the option to convert the rider to something permanent with no health questions asked. This ensures your child will have life insurance for life.
  2. Group Life insurance through the workplace is another option for insuring a child with special needs. These types of policies usually require no medical exam and ask very few questions. The main issue with insuring your child or even your family at work is that when you leave, whether retirement or another job opportunity, the life insurance doesn’t leave with you.
  3. If your child is 18 and above then your options will be limited to a guaranteed issue policy or an accidental death benefit policy. These policies do require a level of function from the special needs child to sign the application.

Which Life Insurance is Better….Term or Whole Life?

The two types of life insurance that you will likely choose from are term and whole life.

Term Life Insurance is the most simple to understand. You choose the death benefit and length you want the coverage (10-30 years). The insurance company basis the premium on your age and health risk.  These policies are very affordable but do expire at end of term chosen.

Whole Life Insurance unlike term life covers you for your entire life as long as the premiums are paid. The premium and death benefit are guaranteed no matter how much your health declines.

Whole life policies build cash value, which we mentioned earlier.

Whole life can get a bit pricey compared to term so its recommended to secure a policy when your child is young.  The older they get the more expensive.

We now know the differences between term life and whole life, which is best for our children with special needs? 

First lets remember that each child with special needs in unique in his or her own way. The spectrum’s for each of our children vary widely.

Some could have health issues now that will only worsen with time while others have no health issues now only to develop them later. If your child fits here then whole life insurance is going to be your best option.

Term life fits when our children our stable and not likely to decline over time.

For example, Liam (my son) had open heart surgery when he was 7 months old. Even though it was a huge success and he is healthy now, he is still considered a health risk because he will always have congenital heart disease. So whole life was the best choice for us.

This is why it is important to secure life insurance as early as possible.

Most of the time our child with special needs will qualify for a child rider, mentioned above, graded whole life policy, or guaranteed issue whole life.

What is a Graded Benefit Whole Life Policy?

Because of some of the risks associated with insurance a child with special needs or a child with a disability, life insurance carriers amend how the policies death benefit is paid out.

A typical whole life policy would pay out once the insured passes away while a graded whole life policy depends on how long the insured lives.

Here is an example of how one carrier works:

If the insured dies in the first year, premium plus interest is paid out

If death occurs in the second year, 50% of death benefit is paid out

If the insured dies in year three, 75% of death benefit is paid out

And finally if death is in the fourth year, the full death benefit is paid out.

This is just a sample of what a graded whole life policy looks like. Remember all companies are not the same and the payouts may be different.

What is Guaranteed Issue Whole Life?

Guaranteed issue whole life is usually a last resort type of policy.  These types of policies are only valuable when all other life insurance options have been exhausted.

Guaranteed issue whole life is just like it sounds, guaranteed to be approved.  There are no health questions whatsoever which means that all qualify, as long as you can sign your name.

The premiums are going to be high!!

Death benefits are limited to usually a max of $25K

Minimum age to buy for most companies is 50 and above.

The death benefit just like the graded benefit whole life is adjusted depending on how long the insured lives.

Here is an example:

If the insured dies in the first two years, the premium plus interest is paid out

After 2 years, the full benefit is paid out

Although this type of policy shouldn’t be your first choice, it is a viable option if you are unable to qualify for traditional life insurance or a graded benefit whole life.

You are Their Only Advocate, Don’t Take No for an Answer

We are the voices for our children. If they don’t have us fighting for them, then who will. This is no different with life insurance.

Some agents will tell you that children with special needs will not qualify for life insurance. This couldn’t be further from the truth.

With the options like graded benefit whole life and guaranteed issue whole life, the chances are good your child would qualify for some type of insurance coverage.

Premiums will vary widely from company to company so it’s important to research which companies would view your situation the best. Shopping around and working with an experienced agent will conclude with you finding the best and most affordable coverage.

Our Thoughts

While talking about life insurance on your child, it’s especially hard for parents with special need children.

The chances that we outlive our children is much higher than with “typical children”, and let’s be honest who wants to benefit from a child’s death.

With that said, life insurance on our children is very important to our financial objectives and plans. Life insurance is strategic in making sure our loved ones aren’t burdened by the financial impact of a death.

Buying life insurance for our special needs child needs to be thorough and always get the advise from an experienced agent before committing to any type of contract.  Understanding what is covered and how benefits are paid is crucial to making a sound decision.  If we can be of assistance please don’t hesitate to reach out.

 

 

 

Rob Pinner
Rob Pinner

At Easy Quotes 4 You we aim to make your life insurance buying process a smooth and stress free transaction.  We are independent life insurance agents servicing all 50 states. I have over 15 years of experience and have focused solely on life insurance for the past 5 years. If you have any questions or comments please don’t hesitate to give us a call.

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1 Comment

Mrs. Pinner

Great read. I like the way you blog.

December 4, 2018 at 8:36 pm
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