Though the vast majority of America’s 2.6 million children with special needs will need costly care long after their parents have passed away, few parents are prepared for that day. New research sponsored by The Hartford Financial Services Group, Inc. has found that three in five (62%) parents of children with special needs have no plan to cover the cost of caring for the child when they no longer are able to do so. And those that do have a plan often make mistakes that may disqualify their child for government services on which they now depend.
Of parents with a plan, only 42% are confident it will cover their child’s lifetime needs. The most common strategy (65%) used to cover the anticipated cost of care was life insurance. The vast majority of parents (85%) with a child under five have life insurance. But just 46% with a child between the ages of 13-18 have a life insurance policy, despite the fact that a child’s needs may be as great or greater as an adult. Among those with a life insurance policy, 51% do not know that during the child’s lifetime they may access the accumulated cash value in a permanent policy to cover some of the cost of their child’s special needs and 72% of those who are aware they can do this do not take advantage of it.
Even parents with a plan for their child made costly mistakes. Half of all parents of children with special needs plan to leave money directly to their child and even more (58%) name their child as a beneficiary, either of which could possibly disqualify the child for critical government benefits and services. In addition, only a quarter of the parents have established a special needs trust to provide for supplemental needs and expenses of the child, while not disqualifying the individual from receiving government benefits. These missteps likely occurred because only 16% of parents with a plan created it with the help of an attorney.
Parents should take these four steps to help ensure their special needs child is protected:
1. Work with a Financial Professional to develop a plan capable of funding a lifetime of support for your special needs child, over and above what the government will provide.
2. Establish a special needs trust to protect the assets and to ensure the child will qualify to receive government benefits and services.
3. Speak with the person you want to be your child’s guardian so they fully understand the commitment and are willing to take on the obligation.
4. Buy a permanent life insurance policy to cover the anticipated cost of care.
Parents often assume they have to amass a big savings account to cover expenses, which can easily amount to hundreds of thousands of dollars over the course of their child’s lifetime, when individual life insurance can provide a more affordable strategy.