Life Insurance for Family Members with Special NeedsLife Events
Love and obligations that last a lifetime
Parents with a special needs child understand the extraordinary responsibilities that come with finding the right schools, doctors, caretakers and other professional service providers that will help give their child the best possible chance for living a long and happy life. However, this also means their child may outlive them, and that’s a scenario most parents of special needs kids don’t like to think about. Who will take care of my child when I’m gone? Who will pay for my child’s living expenses?
Covering the costs associated with the care of a special needs individual adds up quickly and only increases over the long term. An adaptive wheelchair can top $10,0001, while a hospital stay can easily set you back $30,000 in three days.2 In fact, the cumulative cost to care for an individual with autism can reach $2.4 million over the entire course of his or her life, according to a study published in the Journal of the American Medical Association.3
Planning for the future can be overwhelming as a family tries to balance current needs and financial constraints with concern for the future care of their child.
Fortunately, there are options to help parents meet the long-term financial commitment necessary to provide care for their special needs child.
Where to find help
Because of the ongoing financial responsibilities associated with caring for an individual with special needs, the federal government may provide monetary assistance to help cover some of the expenses that come with maintaining the quality of life for disabled individuals, such as purchasing a specially equipped van, home health care, travel options or other developmental aid. However, in order to qualify for this crucial government assistance, dependents with special needs must fall under certain income and asset thresholds.4
A special needs trust may be an effective way for parents to capitalize on government assistance while providing long-term security and the vital resources necessary for their child's well-being.
Special needs trusts
A properly drafted special needs trust can protect the beneficiary’s eligibility for government benefits, while at the same time providing access to the assets held in the trust for his or her benefit. Even though access to assets within the trust is restricted, the trust can still pay, at the trustee’s discretion, for important expenses such as transportation, home health care, education, rehabilitation, computer equipment, and medical and dental care that are not covered by private policies, Medicare or Medicaid.
- Third-party settled trust
This is the most often used trust for parents of children with special needs because it can provide for the child throughout his or her lifetime. By using this type of trust, the special needs person can still qualify for government assistance, which goes a long way toward ensuring long-term quality of life.
- Self-settled trust
This kind of trust is established when a special needs individual funds his or her trust with their own money and names themselves as the beneficiary. When this money is used in conjunction with government assistance, any funds in the trust that are still available after the person passes away must go toward repaying the government.
During the process of creating a special needs trust, a trustee other than the beneficiary will be named. The trustee is responsible for distributing money to the disabled individual. To continue to qualify for government assistance, a third party must act as the trustee to oversee distributions from the trust. This makes the funds available for the special needs individual throughout their lifetime.
Since the needs of the disabled beneficiary can vary over time, it's important to evaluate the trust regularly to ensure it continues to provide adequate financial support.
Many families with special needs children request that the trust purchase life insurance on the life of one or both parents. This strategy allows parents or caregivers to budget an amount today to provide a leveraged death benefit that will help fund the trust to care for the child after the parents are gone, and may ease their concerns for their child’s long-term financial needs.
1 Pricelist: Medicaleshop.com, accessed 01/04/16.
2 Department of Health and Human Services, The Value of Health Insurance, CMS Product No. 11631, Revised June 2015.
3 Costs of Autism Spectrum Disorders in the United Kingdom and the United States, JAMA Pediatrics, August 2014.
4 Social Security Supplemental Security Income (SSI) SSA Publication No. 05-11000 August 2012.
Life insurance, annuities and accidental death insurance issued by Farmers New World Life Insurance Company, 3003 77th Ave. SE, Mercer Island, WA 98040.
IC -0116-A 01/16