Q:Question My daughter is autistic and requires my constant care and attention. I don’t know what the future will look like for her, but I’m sure she will require help from others. I know I need life insurance, but want to find a policy that will help financially support her care after I’m gone. Where do I start?

We posed this question to Christian Slayton, a Farmers Insurance^® agent based in Albuquerque, New Mexico. Here’s what she had to say about how life insurance can help you support the financial future of your child with special needs.

A:Answer I can’t say I know exactly how you feel, but I do understand what you are going through. I work with parents of children with special needs, and I know the toll it can take to be constantly worrying about what might happen to your child if you were no longer there to care for them. Finding life insurance coverage that works for you can help you establish some financial support for your child in the event of your death. You can even use life insurance to help build cash value to pay for future expenses. And there are a few other things to be aware of before purchasing life insurance for the benefit of an individual with special needs. Here are some of the questions I hear from customers.

Should I consider term or permanent life insurance if I have a special needs child?

As a parent to a child with special needs, you are probably primarily looking for a policy that will stay in place for your lifetime as long as you are paying premiums, so permanent life insurance may be a product worth looking into. With term insurance, the policy begins to increase in price significantly when its level premium period ends – say in 10, 20 or 30 years. Keeping a term policy after its level premium ends can become expensive. Permanent life insurance, on the other hand, stays in place throughout your lifetime as long as required premiums are paid. Additionally, permanent life policies have the potential to accumulate cash value over time, which you can borrow from during your lifetime. Because of these features, premiums for permanent insurance tend to be higher than for term insurance, but they can remain the same throughout the life of the insured.

There are generally two types of permanent life policies: whole and universal. Whole life policies have fixed regular premiums and universal life policies are designed to be more flexible, depending on the individual policy terms. With some universal life policies, it may be possible to change or skip regular premiums, or to increase the face value of the policy over time depending on the underlying cash value. Some increases will need underwriting approval and will increase the premium payment amount.

So what happens when my special needs child gets a life insurance payout?

One of the most important things to understand is how a life insurance payout can impact any public assistance or disability income your child receives or may receive in the future. Many special needs adults rely on government income to help cover their basic living needs, particularly if they are living independently with no loved ones to support them.

If you were to name your child as the beneficiary of your life insurance policy, meaning the child receives the proceeds of the policy after you die, it might impact the child’s eligibility for public assistance. Even a life insurance proceed of just $100,000 could make your child ineligible for financial aid. Additionally, Medicaid’s payback provision could require your child to repay the government for assistance after a single lump-sum insurance benefit payment.

That’s exactly what I don’t want. So, is there a way to help support my child financially without hurting public assistance eligibility?

You may want to consult an attorney to advise you and possibly help you establish a special needs trust for the benefit of your child. I am not an attorney, but it is my general understanding that this type of trust can be structured so that the life insurance proceeds are not counted as an asset.

The same is true for other financial gifts or contributions. You may want to let your extended family and friend network know about the trust you establish for your child. You could give them the option to have any gifts or inheritance being left to benefit the child be gifted to the trust rather than to the child directly.

The information contained in this page is provided for general informational purposes only. The information is provided by Farmers^® and while we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to this article or the information, products, services or related graphics, if any, contained in this article for any purpose. The information is not meant as professional or expert advice, and any reliance you place on such information is therefore strictly at your own risk.

¹ Lifetime coverage (or life of the policy) is guaranteed as long as all premiums are paid to keep the policy in force.

² Farmers^® companies, employees, agents, and representatives do not provide legal or tax advice.{In general, partial or full surrenders from a permanent life insurance policy in excess of the policy’s basis are taxable. Limited circumstances exist where death proceeds will be taxable} [Withdrawals, surrenders, or beneficiary proceeds from an annuity in excess of the annuity’s basis may be taxable depending on the type of annuity].This material has been prepared for general informational purposes only, and is not intended to provide and should not be relied on for tax, legal or financial advice. Because each individual’s situation is different, specific advice should be tailored to your particular circumstances; you should always consult your own tax, legal and other advisors before engaging in any transaction. This material reflects our general understanding of current law as of the date hereof, but tax laws and IRS administrative positions may change. This material is not intended to and cannot be used to avoid any Internal Revenue Service penalties. We specifically disclaim any liability resulting from the use or application of information contained in this publication.

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