CMP Financial Planning

Life Insurance and Special Needs Planning


The previous Disability Insights article addressed the importance of developing a comprehensive financial plan. A key component of any comprehensive financial often involves insurance. Insurance protects assets in case of premature death. For the special needs family, insurance can provide funding for a special needs trust set up to provide for the child with a disability.

Life insurance traditionally is used to replace lost income of the primary wage earner. With special needs families, the cost of caregiving expenses needs also has to be reflected in the death benefit of the life insurance policy because so much of the care is often provided by one or both of the parents.

Types of Insurance

Term insurance offers protection for a specified period of time, say 10 or 20 years. Their premiums are often lower than those of other life insurance policies during this fixed period but then often becomes more expensive after the term expires. Term insurance is temporary insurance.

Whole life or permanent insurances offers protection over the entire life of the insured. Premiums are typically more expensive initially than term insurance but they remain constant over the duration of the policy.

Finally, a second to die policy, whether term or permanent, covers two lives. This kind of policy differs from regular insurance in that the surviving spouse doesn’t receive any benefits. It is used as an estate planning tool to provide for the needs of the children. These policies often have lower premiums than single life policies.

Whether single life or second to die, permanent insurance is often a preferred funding vehicle for providing for the future care needs of the child with a disability. It is often easier for families to fund the special needs trust from the death benefit of the permanent insurance policy rather than from their own wealth. Even wealthy families may find value in obtaining permanent insurance in order to be certain that the care needs of their loved one is provided for.   Regardless of the type of life insurance chosen, it is essential to designate the trust and not the individual as the beneficiary in order not to avoid jeopardizing the public assistance benefits that might be available to the person with a disability.

How much insurance should I get?

The amount of the death benefit should be enough to provide for the loss of income of the primary wage earner and for the caregiving needs of the child with a disability less any public assistance benefits that child might receive. You will want to work with a life insurance agent and/or financial planner who has a background in special needs planning in order to come up with a death benefit that will meet your loved one’s needs throughout their lifetime.

Life insurance is always an important component of any comprehensive financial plan but even more so for special needs families. Insurance provides protection not only for the premature death of a parent but also for the future funding needs of the child with a disability.

By Barry Jamieson