How to use life insurance to help a special needs child or adult
From life insurance to a special needs trust, here's what you need to know to keep your loved one financially secure.
If you live with and/or support a loved one with special needs, planning for their future is crucial — and part of that planning involves their finances. Life insurance for parents and guardians can help provide them with financial security, but there are a few things to consider as you choose the right type of policy for your needs.
Review your options
While term life insurance is a popular, inexpensive option for many people, it will expire at the end of a period of time you've chosen. This isn't an issue for people whose children or family eventually become independent and support themselves, but it can create a crucial gap in coverage when you have dependents who need long-term support.
Whole life insurance doesn't expire, and as long as you pay your premiums, it will always be available when your family member needs it — potentially making it a better bet for long-term protection. While whole life insurance is often initially more expensive than term life insurance, it can be cost effective over the long haul.
Survivorship universal life insurance, sometimes called second to die life insurance, may be another option. These policies cover two people (typically parents) with a lower premium than what two individual permanent policies would cost. Besides affordability, another advantage of survivorship universal life policies is their flexibility. After the second parent passes away, the proceeds from the death benefit can go to your child, act as a charitable donation, provide the funds needed to pass down a family business and more.
Consider a special needs trust
Another thing to consider is how a benefit payout might affect any government benefits your loved one receives, or will receive in your absence. In some cases, leaving them too much money — in assets or as a beneficiary of your life insurance policy — may disqualify them from receiving certain government benefits. In order to prevent this from happening, a special needs trust can be created to provide money for expenses not covered by government benefits.
Special needs trusts can be funded through the use of life insurance. Any of the previously mentioned policy types can be used, though a survivorship universal life insurance policy is the most common when parents are the primary caregivers. The trustee, or person who will manage the money after you die, can be anyone — but choose them thoughtfully and carefully.
Get help along the way
Navigating between life insurance policies and government benefits can be difficult — and getting it wrong can leave your loved one in a tough financial situation — so it's good to ask for help along the way. Experienced insurance agents can discuss policies to protect your family and its unique situation. It's not a bad idea to consult an attorney and a financial professional as well. Even better, some financial professionals specialize in planning for families with special needs and can help ensure you've done all you can to keep your loved one secure for years to come.