A family with a special needs child is laying on a bed talking and laughing.

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.

Neither State Farm nor its agents provide tax or legal advice.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

State Farm Life Insurance Company (Not licensed in MA, NY or WI)
State Farm Life and Accident Assurance Company (Licensed in NY and WI)
Bloomington, IL

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