I’ve explained before how term life insurance is a good fit for most families. However, families that include dependents with special needs will likely find that the benefits of whole life insurance is a better way to ensure their financial security.
If your child (or relative) with a disability requires ongoing care for their entire lifetime, your insurance needs are different from most families. Your financial responsibility to your child extends their entire lives. Chances are good that they’ll outlive you.
That can be a terrifying prospect.
Filling in for lost wages
That’s why it’s so important to do everything you can to prepare for that eventuality. You need to ensure that your child will be supported — no matter what happens to you.
You may have some savings, retirement accounts or investments that could help provide for your special needs child. However, caregivers often leave a career behind — or seriously reduce their hours — in order to care for their loved one. This can negatively impact their pension or retirement savings or even their Social Security benefits.
A solid life insurance policy can help make up for this loss in wage opportunities and add an extra needed inheritance for your family. This is where the benefits of whole life insurance come in.
Permanent insurance is key
While in most situations, parents can expect their children to grow up and become financially independent, families with special needs children understand that’s not always the case. Further, care for children with special needs add up quickly.
Lifetime expenses for a person with autism can total $3.2 million, according to M&L Special Needs Planning. Further, 69% of families with special needs children are “very concerned about being able to provide lifetime care for their dependents with special needs.”
Since your dependent will never outgrow their need for financial support, you do NOT want a term policy that will expire after a certain amount of time. Whole life insurance will provide lifelong protection, no matter how long or short you live.
You pay a fixed-price premium, and it lasts your entire life, with those payments adding up over time. As that cash value increases, it also earns tax-free interest.
One of the benefits of whole life insurance is the fact that it will never expire as long as you pay your premium. You can depend on it being there for your special needs dependents when you die.
An additional option is survivorship life insurance, which could collectively insure both parents under the same policy. The payout to the dependent would only occur after the second person dies. This makes it much cheaper — with a greater payout — than if you were to buy two separate life insurance policies to cover each parent individually.
Survivorship life insurance is usually offered as either whole life insurance (which is the simplest permanent insurance) or universal life insurance (which will vary based on risk).
Calculate your dependent’s needs
In addition to hiring a reputable insurance agent, you need to calculate your typical life insurance needs as well as your dependent’s cost of care so you have a good estimate of how much insurance is best for you to purchase.
First, consider all their costs, such as equipment, medications, therapies, housing, education or transportation if they cannot drive themselves.
Next, calculate all of these expenses over the anticipated lifetime of your loved one. Will they be able to partially or fully care for themselves? Or will they always need significant levels of outside care? According to a 2017 study, the average cost of living for a disabled adult is five times larger than their non-disabled counterparts.
You can also subtract any known government assistance that your dependent may have, such as Medicaid or the Children’s Health Insurance Program, because these programs will already be providing some of that assistance.
There’s a good chance you will need numerous financial options to insure the care of your special needs dependent, but don’t underestimate the benefits of whole life insurance as one of those options!
Insure your dependent as well
Depending on your child’s health conditions and age, you may be able to find a company that is willing to grant your child his or her own permanent life insurance policy. If so, I strongly urge you to take out a policy for your child as well.
This is because one of the wonderful benefits of whole life insurance is that it has cash value. In fact, the cash value accumulates over time.
That means that it is possible for the insured to withdraw some of the value of the policy to use during his or her lifetime in addition to being the beneficiary of your policy. This could become a helpful revenue stream to draw upon for unexpected medical expenses or care.
It’s important to lock in an insurance plan early, since it could be harder to insure someone with special needs. If your child’s health deteriorates, it might become impossible to get a policy when you need it most.
Determine who will make decisions for your child
One final consideration is whether your special needs dependent is capable of making their own financial decisions. If not, then you should apply for legal guardianship and power of attorney for when they turn 18 so that you may continue to make financial and health decisions for them.
Similarly, you will want to create a letter of intent to better inform your child’s future caregivers on how to best provide care for your dependent when you are gone. This can provide valuable information about your child, as well as being a way to advocate for them even when you can’t do it yourself.
You should also indicate how you intended them to use the death benefit of your life insurance policy.
Talk about your options today
No matter which plan you choose, make sure you hire a trusted agent who has your interests in mind. Don’t wait until tragedy strikes. Let’s schedule a time to work out how best to protect your loved ones today.
