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Is There Life Insurance for a Child with Special Needs?

parents with special needs son

By McKenzy Bowers | August 14, 2019

Children with special needs can present exceptional challenges for parents. One being, ensuring your child will be financially secure and cared for after you’re gone. As any parent knows, raising a family can be both rewarding and challenging. However, caring for a child with such needs requires a level of devotion and dedication that can sometimes be overwhelming. Parents can be left feeling frustrated and alone as they search for information, understanding, and the support they desperately need.

If that child was your child, what would happen if you or your spouse suddenly passed on? Would that child have the resources necessary to survive without you? Who would pick up the slack…emotionally, physically, and financially? How would that child get the care he (or she) needs? How would the bills get paid?

One of the most amazing financial instruments available to you and your family is life insurance. Life insurance is, by far, the best way to turn pennies into dollars when your loved ones need it the most. Whether you purchase a Term Life or Whole Life policy, having life insurance that’s in force when you die is the key to providing financial security to your family.

How does a child with special needs use life insurance?

Once you have purchased that life insurance, the next step is to set up a Special Needs Trust. This type of trust is specifically designed to protect the present and futures needs of disabled or mentally ill beneficiaries. You can use this trust as the vehicle to park your policy’s death benefit (the whole payout or just a portion) in this “garage” (as it were), so your child is financially protected after you’re gone.

Wouldn’t a Will accomplish the same thing as life insurance?

Not exactly. In a traditional will, if you leave property or other assets (including cash) directly to your offspring, it could disqualify the child from applying for government assistance down the road. Also, a will can be contested in the courts, which could potentially delay access to those funds for years. But a Special Needs Trust is specifically designed for a very precise purpose…protecting the rights of a child with special needs.

Also, certain types of federal assistance programs (Supplemental Security Income, Medicaid etc) have income eligibility requirements an applicant must meet in order to qualify for benefits. However, if the applicant’s financial resources and reserves are too large, it could adversely affect the amount of assistance offered.

With a Special Needs Trust, the trustee has access to the assets, not the child. So as long as the child doesn’t have direct access to the funds, government assistance administrators tend to take a more “hands-off” approach. In short, if you have a special needs child, this type of trust can provide the financial protection and flexibility that your child will probably need after you’re gone.

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