Dec 31, 2022
Life insurance is a common way for parents to provide for their families while their children still live at home. When a parent passes away suddenly, the death benefit is paid to the surviving spouse to help compensate for the loss of income. There may be less need for protection if the kids are grown and can support themselves.
There are situations where you may choose to identify a trust, specifically a special needs trust, as the beneficiary of your life insurance policy rather than your child. Once a trust is established, it is legally permitted to receive additional funds for the benefit of the beneficiary kid.
A trust is a type of legal entity that, once set up, can accept, hold, and disburse assets to its beneficiaries. Your child may be eligible for this as the beneficiary of a special needs trust (also referred to as a supplemental needs trust). A trustee is someone you appoint, usually a sibling or other close relative, and a trusted professional like an attorney. Simply put, they manage the trust's assets and disperse them based on your established guidelines. Working with legal counsel is recommended when establishing any trust, including a special needs trust, for the reasons given below. Numerous positive outcomes may result from designating a special needs trust as a life insurance policy beneficiary.
All trust agreements are notoriously difficult to understand and interpret. The trust you establish must consider not just state and federal legislation but also the child's long-term needs, your financial condition and estate plan, detailed care instructions, and eligibility requirements for government aid programs. You should hire a lawyer who has experience with special needs trusts. If you don't know someone who fits this description, you can ask another lawyer or parents of children with special needs for a recommendation.
There are two main sorts of policies to choose from when purchasing protection for a kid after your death: term and permanent.
Term life insurance policies typically offer protection for a decade to a lifetime. Since no cash value is involved, this type of coverage is commonly referred to as "pure life insurance." That, plus the fact that term insurance is only in effect for a limited time, means that it may be purchased for far less than the equivalent amount of permanent life insurance. While that's appealing, it also means that once the policy's term is up, your child won't receive a death benefit or inherit any money from it.
So far, we've covered the issues parents face who worry about their special needs child outliving them. Other people face the opposite but no less tragic scenario: what happens when a parent anticipates outliving a child?
Bereaved parents typically have to deal with substantial financial obligations to add to their sorrow. Expenses related to health care are a reality—bills associated with a caretaker. Months or years spent out of the workforce result in missed payments and career chances. Having life insurance will ease some of the financial pressure.
Purchasing life insurance for your child and family can be a strong financial move. However, your circumstances and requirements are more nuanced than average because you are the parent of a child with special needs. Estate planning and other forms of expert counsel can assist you in finding the optimal answer. Talk to an insurance agent or financial advisor with expertise working with families with children with special needs. You can ask around among other parents or friends if you need to know someone who fits this description. If you prefer, Guardian can put you in touch with a financial advisor.
It is possible to obtain life insurance with a disability. There may be minimal to no effect on insurability if the handicap does not shorten the insured person's expected lifespan. But if a person has a handicap that shortens their life expectancy, it will impair their access to various insurance policies. However, guaranteed issue insurance will cover you for a set sum no matter what your health is like.