Life Insurance Planning for Parents of Children with Special Needs
The greatest concern for parents of a child with special needs is the uncertainty of what will happen when they are no longer able to care for the child after their deaths. If you have a child with special needs, it is important to make sure your child has the funding needed to receive the quality of care you would want for them after you are gone. Life insurance can play an important role in providing these funds. Here are some important facts that you need to know about life insurance planning for children with special needs.
The Importance of a Special Needs Trust
A special needs trust (SNT) is a legal document to benefit an individual who has a disability. An SNT enables a person with a disability to have assets held in trust for his or her benefit. One of the greatest benefits of a special needs trust is that the assets held inside the trust are not countable assets for qualifying for government benefits such as Supplemental Security Income (SSI) or Medicaid. The trust will be administered by a trustee. Ideally, an experienced professional trustee should be used to distribute the trust funds for the benefit of the special needs child. Through a special needs trust, you can direct the trustee to pay for supplemental care beyond what Medicare and SSI will pay for. This will allow you to tailor a quality of life for your child specific to your wishes.
Life Insurance Options for Funding a Special Needs Trust
The death benefit from a life insurance policy can be an important source of funding for a special needs trust. During their life time, parents will most likely directly provide supplemental care and funds to support a child with special needs. For this reason, funding a special needs trust will be necessary after the surviving parent has passed away in most cases. So which type of insurance product will be the right fit?
For a family with two parents, it would be practical to use a survivorship universal life policy (SUL). An SUL policy, also known as a second to die policy, covers two people and provides a death benefit only after the second person has passed away. An SUL policy is less expensive than purchasing two individual permanent policies in most cases. The SUL policy would simply name the special needs trust as the beneficiary. Survivorship premiums will continue after the first parent has passed away so it is important to make sure ample funds are available for the surviving parent to continue paying premiums on the policy until their death.
For a single parent of a child with special needs, an individual permanent policy would most likely be the best choice if using a life insurance policy to fund a special needs trust. This can be accomplished through a universal life or whole life policy. The special needs trust would be the beneficiary of this policy.
Since permanent insurance costs more than term insurance, initially using permanent coverage might be a cost issue for some. In this case, it might make sense to purchase cheaper term policies for each parent and convert them to survivorship universal life coverage sometime in the future when the funds are available to do so. Not all companies allow this type of conversion so it is important to check the conversion policy on any term product before you buy it.
Life Insurance Planning for Parents of Children with Special Needs
If you have a child with special needs, long term planning should really be a priority. Creating a special needs trust is very important for two main reasons. One, it can provide your child with the supplemental funds needed for a more comfortable life while protecting their government benefits. Two, it can allow you to provide them access to superior care and services when you are no longer alive to take care of them. Life insurance is an excellent means to fund a special needs trust. If you have a child with special needs and would like to know more about funding a special needs trust with life insurance, feel free to give us a call at 888-687-9444 or email us at info@archstoneagency.com.
*This post was simply meant to outline a basic strategy for special needs trust funding with life insurance. We do not offer tax or planning advice. State laws for special needs trusts differ so it is important to speak to an experienced attorney or estate planner that is knowledgeable about special needs trusts.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.
