Life insurance for disabled or special needs children

When a child is born, many people purchase a life insurance policy for him or her. The parent is typically the owner and beneficiary of the policy, and many of these policies are known as industrial or debit policies. There were several purposes for these policies, namely to provide a death benefit, to add cash value, and also to guarantee insurability. There are also family policies issued where everyone in the family has some coverage, even in the unfortunate event of an incapacitated family member.

While it is relatively easy to have a policy issued once the insured has been qualified for coverage, it is very important to consider all of the facets of that policy. There are normally four parties to a policy: the insurance company, the owner, the insured, and the beneficiary.

Care should be taken to ensure that all of the correct parties are named within a policy, as there could be adverse consequences if the policy is not issued properly at its inception. Normally, an insurance agent reviews these options with the applicant when the policy is being issued or applied for.

So how about purchasing a life insurance policy on a disabled child? If your child is disabled to the extent that he or she is not insurable, a policy may not be able to be obtained at a standard rate. However, there are companies who will write policies with a rating based on the health of your child, and there are issues relative to these policies that you should consider.

1. Who should own the policy? In most cases, providing that the parents do not have a significant taxable estate, they should probably be the owners of the policy. However, in the event that a parent predeceases the child, there should be a contingent owner. Without a contingent owner named in the policy, in the event of the death of the parent, this policy will have to be probated, and it will then pass to whomever the parent has left the assets to, family, friends, or charities. In most cases, policy proceeds are intended to remain in the family to cover expenses of the disabled child. Therefore, the contingent owner of the policy should probably be the surviving parent, a sibling, or possibly all siblings.


2. Who is the beneficiary of the policy? Normally, the parents will be the beneficiaries, and the secondary beneficiaries would be the surviving siblings of the disabled child. If there are no siblings, family or perhaps a charity or non-profit organization may be named. In some cases, based on the size of the policy, an irrevocable life insurance trust could be considered as the owner and beneficiary of the policy. However, it is important to not name the disabled child as the owner of a whole life policy that will gain cash values. If the cash values of the policy exceed the threshold for either Medicaid, SSI limitations, or other governmental entitlement programs, the disabled individual could be disqualified from obtaining services or benefits. It is highly unlikely that the child will need the cash value of this policy during lifetime, but if needed, then the owner of the policy could either surrender or borrow against it to provide funds for the beneficiary.

In the event that a policy was issued without proper attention to its owners and beneficiaries, it is important to contact your agent or insurance company to discuss the options available. Perhaps this type of policy is no longer necessary, and it may be more appropriate to utilize the cash value within the policy to purchase life insurance on the parent, which may provide a larger death benefit for the disabled child.

Again, care should be given as to who actually owns the policy as well as the beneficiary. The owner should not be the parent if there is significant cash value, since if the parent becomes incapacitated, the cash value of the policy may have to be used for their long-term care. Also, if the disabled child is the beneficiary, the receipt by this child of the insurance proceeds may disqualify him for government benefits. In the event that the beneficiary is a non-disabled sibling, he may neglect to use the funds for the care of his disabled sibling.

Therefore, a special needs trust with the appropriate provisions will allow these funds to be utilized for the disabled child without having any loss of benefits. But more importantly, it will provide a guarantee that the funds will in fact be used only for your disabled child. Contingent beneficiaries may be listed within the trust after the death of the disabled beneficiary, such as charities, family, and possibly even other providers of services to the disabled child during their lifetime.

By: Hyman G. Darling, Esq.

Comments

[Term Life Insurance Quote]

Great advice! If I may add my two sense, getting a broker is like getting a lawyer; you have to work off of recommendations. Some are good and genuinely interested in your situation, and some are looking to make as much money off you as possible. The best way to find out is to do as much research as possible and then act like you have no idea what you're talking about when you confer with your agent.

[Life Insurance Agents]

Parents, grandparents and others wanting to benefit family members with special needs should act carefully in providing for lifetime gifts or testamentary gifts.

[Steve Potman]

Life insurance is a very important thing for people. A lot of people do not realize how important it is to be safe and covered in case of an emergency. Family insurance is very important. Take care of your family and prevent panic if something does happen.

[TLI]

Recommendations are worth their weight in gold; especially when their advice helps you meet your goals. Whether it's estate planning or buying life insurance, finding the right advisor that you feel comfortable with is part of the process everyone goes through when searching for information about a specific type of investment or policy.