Life insurance for children with disabilities

Parents and caretakers can buy whole life insurance and name a trust as their beneficiary to protect a child with a disability.

Rebecca Shoenthal author photoAmanda Shih author photo

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Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

 & Amanda Shih

Amanda Shih

Editor & Licensed Life Insurance Expert

Amanda Shih is an editor and a licensed life, disability, and health insurance expert at Policygenius, where she writes about life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Updated January 19, 2022 | 4 min read

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If you are the parent or guardian of a child with a disability, there are two types of life insurance policies to consider: a policy that insures you, the parent, and makes your child the beneficiary; and a policy that insures your child and makes you the beneficiary. The first type of policy is more commonly recommended, but there are circumstances where the second type of policy could be worth considering. 

Every situation is different depending on your finances and the disability your child has, so we recommend working with a Policygenius agent and estate planning attorney to ensure that your child has the right financial protection.

Key Takeaways

  • A whole life insurance policy in which a supplemental needs trust is the beneficiary ensures your child will have financial support for life.

  • If your child’s disability will make getting coverage difficult as an adult, consider buying a policy on them.

  • Term life insurance is a good, affordable option if your child will be able to care for themselves independently as an adult.

Life insurance for parents of a child with disabilities

If you have a child, a life insurance policy is one way to make sure that their needs are still met when you die. If you have a child with disabilities, that kind of protection can be important once your child is an adult, as well.

There are two popular types of life insurance: term life insurance, which lasts for a set period, and whole life insurance, which lasts as long as you keep paying premiums and has a cash value.

If your child will need care into adulthood, a whole life insurance policy is the better choice. Whole life costs 5 to 15 times more than term life insurance but provides lifetime protection that a term policy can’t. 

You can consider a term life policy that has an option to convert to permanent life insurance if whole life doesn’t currently fit your budget or if your child won’t need continued care as an adult. You’ll have protection that you can afford and the ability to get permanent coverage later.

→ Read our guide to shopping for life insurance for adults with disabilities

Setting up a supplemental needs trust

The best way to ensure your life insurance payout is used for your child’s care is to set up a supplemental needs trust, also called a special needs trust, and name it as your policy’s beneficiary

Supplemental needs trusts are designed to provide for people who are unable to handle their own finances and care. You can leave specific instructions for how and when to use trust funds and a trustee manages the funds within your specifications. A co-trustee, such as a lawyer, guarantees the funds are being used correctly.

The trust also ensures that your child can still qualify for public, needs-based benefit programs like Medicaid and Supplemental Security Income.

Though you might want to name your child as your beneficiary, insurance companies can’t pay out benefits to people under the age of majority (18 to 21, depending on your state). Your death benefit will get tied up in court proceedings and delay access to the funds. 

Survivorship life insurance for parents of a child with disabilities

The best life insurance options for parents are usually individual term policies or individual whole life policies for each parent, but there is another option: a joint life insurance policy that covers both parents.

Joint life insurance policies are whole life insurance policies that insure two people. They’re typically more affordable than buying a whole life policy for each parent, but still offer lifelong insurance protection. 

Parents choosing joint life insurance should get survivorship life insurance, also called second-to-die life insurance, rather than first-to-die joint life insurance. Survivorship policies pay out after both people insured pass away — first-to-die pays out after just one person dies — ensuring that your child isn’t left without financial support after you’re both gone. 

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Life insurance for children with disabilities

Insuring your child doesn’t usually make sense because they don’t earn an income. But, a child with a complicated medical background may have difficulty finding affordable life insurance as an adult and can benefit from getting covered when they’re young. 

While it’s hard to think about, getting coverage for your child can also provide financial support if they pass away prematurely. The proceeds from their policy could cover funeral costs or help you keep up with bills while you grieve.

How to buy life insurance for a child with disabilities

There are two ways to purchase life insurance for a child:

  1. Whole life insurance for children: Most insurers offer small policies for children (usually $25,000 to $150,000 in coverage) that last for life. They’ll have an option to take over the policy as an adult, potentially with higher coverage and premiums.

  2. Child insurance rider: These riders provide $5,000 to $25,000 of coverage for $20 to $200 per year. Some insurers allow you to convert the rider to a whole life policy when it expires, usually when your child turns 25 or you turn 65, whichever comes first. However, not all insurers approve child riders for children with pre-existing conditions.

Every parents’ needs are different. A Policygenius agent can help you decide on the right coverage for your family and an estate planning attorney can help you set up a trust and any other necessary documents to ensure your child has the financial protection they need.

Frequently asked questions

Is whole or term life insurance coverage better for parents of a child with disabilities?

For parents of children with disabilities who will need care and financial support into adulthood, a whole life insurance or survivorship life insurance policy makes the most sense.

Should you get life insurance for a child with disabilities?

Consider buying coverage for your child if their disability will make it difficult to get affordable life insurance in the future. It’ll ensure they have some protection for life and secure lower rates than they’d get as an adult.

Do you need a supplemental needs trust for a child with disabilities?

You should set up a trust with an attorney and name it your life insurance beneficiary. A supplemental needs trust ensures that your assets are spent according to your wishes when you’re gone, including life insurance proceeds.