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Elder Planning Isn't Just For The Elderly

Should I use life insurance to help my special needs child?

As the parent of a special needs child, you probably worry about how to provide for your child after your death. You may have heard that taking out a life insurance policy on yourself is one way to secure your child’s future. A whole life insurance policy may be of help, but you should know how to use it to its fullest potential.

Whole life insurance differs from term life insurance in that it is a permanent policy. Nerdwallet explains that permanent insurance has no expiration date, so it will insure you for the rest of your life.

How whole life insurance works

A whole life insurance policy can pay out benefits to your child after you die. To make this work, you need to name your child as a beneficiary on your policy. If you want to insure both you and your spouse, you may take out a survivorship policy. Since a permanent insurance policy is more expensive than term insurance, you should count on paying more in premiums.

If your child is a minor, remember to name someone to be a custodian of your policy in case both you and your spouse die. Your child may not gain access to the funds until he or she becomes an adult. If you do not name a custodian, a court may name one for you.

Life insurance and government benefits

Keep in mind that your child may be eligible for programs like Medicaid, Supplemental Security Income or other federal or state insurance programs. However, disabled individuals typically cannot receive these benefits if they have in excess of $2,000. Receiving money from an insurance policy could boost your child’s assets above eligibility limits.

To get around this problem, you could set up a special needs trust to hold your child’s assets so that your child may qualify for assistance. You may even change the insurance beneficiary from your child to your trust so the insurance money goes to the trust instead. Think about how to coordinate your insurance with a trust to help your child to the best extent possible.