More on Life Insurance
More on Life Insurance
A guide for people with disabilities and parents or caretakers of adults with disabilities looking for life insurance options.
Published November 4, 2020
TABLE OF CONTENTS
If you have a disability, or support someone who has a disability, there are two types of life insurance to consider: a policy that insures you and a policy that insures your parent, guardian or caretaker and makes you the beneficiary. The type of disability and circumstance will determine which option is best. Whichever policy you choose, the goal when shopping for life insurance remains the same: secure financial protection for the people you love.
The most important thing to know is that having a developmental, physical, or any other type of disability does not disqualify you from getting life insurance coverage in most cases. The same factors determine your premium rates. Age, health, gender, hobbies, credit score and other factors are all weighed to determine the risk you pose to the insurance company.
Below, we’ll go into the details of the two main types of policies people with disabilities should consider when choosing life insurance.
Adults with disabilities are not disqualified from getting life insurance and should still consider getting coverage to protect loved ones
For parents and caretakers of adults with disabilities, naming an adult child the beneficiary of your term life insurance policy is a great option
If you are a parent, adding a child rider to your existing life insurance policy makes sense to cover the cost of funeral expenses if something unexpected happens
According to the Americans with Disabilities Act (ADA), a person with a disability is someone who has a physical or mental impairment that substantially limits one or more major life activity, such as breathing, walking, talking, hearing, seeing, sleeping, or other major bodily functions. Life insurance companies look at a disability largely in the context of how it affects your health. Common disabilities include attention deficit disorder (ADD)/attention deficit hyperactivity disorder (ADHD), blindness, bipolar disorder, multiple sclerosis (MS), and autism.
Depending on the type and severity of your disability, some insurance companies might give you a lower health classification (also referred to as Substandard) and higher premium rates. But if your disability does not affect your life expectancy, you could receive a Preferred health classification and more affordable premiums.
If you’re an adult with a disability who has dependents, caretakers, or any outstanding debt, it may make sense to purchase life insurance coverage for yourself to protect your loved ones.
There are two main types of life insurance: term life insurance, which lasts for a set period and whole life insurance, which is a permanent policy that lasts as long as you keep paying premiums and has a cash value.
Term life insurance is the right product for most people and not only because it can cost five to 15 times less than whole life insurance, according to quotes offered by Policygenius in 2020. Most people only need to provide for their family up to a certain point; after that, most debts are paid off and your children will become adults, working and paying their own expenses.
Whole life insurance sometimes makes sense if you have a particular medical condition or health issue because you can secure coverage indefinitely. If your disability is likely to get worse over time, or if you know you’ll be supporting others into retirement and beyond, then whole life insurance is a good option.
If you care for an adult with disabilities who needs lifelong financial support, you have the same options listed above, including term life insurance and permanent life insurance. But unlike the policy options above, you (the adult or caretaker) would be the policyholder and would be purchasing life insurance to provide financial security for a loved one with disabilities.
Adults with certain disabilities may be declined from life insurance coverage if their condition is severe or affects their overall health. People with more severe cases of MS or schizophrenia, for example, might be declined for traditional life insurance policies.
In some cases, an adult with disabilities might not have the capacity to handle their own finances. If this is the case, a caretaker or parent might be better off purchasing life insurance for themselves and naming their dependent as the policy’s beneficiary. Then, if something happens, the adult with disabilities would receive a death benefit.
A whole life insurance policy may be a good option to ensure that the disabled person’s needs will be met when you die. Many parents and caretakers of people with disabilities choose whole life because the policy doesn’t expire; as long as you pay the premiums, your dependents will be able to receive the death benefit no matter when you die.
If you have a younger child with a disability, that kind of protection for yourself can be important once your child is an adult as well and it’s best to get life insurance early.
But life insurance is meant to act as income replacement, and children don’t earn income, so it rarely makes sense to purchase life insurance for a child.
If you choose to name an adult with a disability as your life insurance policy beneficiary and they are unable to handle finances or care, a special needs trust (also called a supplemental needs trust) is a type of trust specifically designed for that situation. This type of trust also ensures the beneficiary can still qualify for needs-based benefit programs like Medicaid and Supplemental Security Income.
Special needs trusts allow you to specify how the funds should be used. A named trustee (another adult of sound mind and body) manages the funds within your specifications; a co-trustee, such as a lawyer or firm, will ensure the funds are being used correctly.
We recommend working with a lawyer if you’re looking to create a special needs trust to make sure it’s set up correctly.
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Having a life insurance policy isn’t the same as having a disability insurance policy. Life insurance provides a lump sum for the income you provided to your family after you die, while disability insurance provides an income replacement if you incur a disability and cannot work.
It sometimes makes sense to have both a life insurance and a disability insurance policy, but having a life insurance policy won’t protect you if you have an existing disability and are faced with an additional disability that prevents you from working. Likewise, having disability insurance won’t provide a payment to your family or loved ones if you die unexpectedly.
The benefits of life insurance outweigh the disadvantages for most people.
Life insurance can help people with disabilities in particular by:
If your family couldn’t afford to pay for a funeral or keep up with bills while grieving, a life insurance death benefit could make a huge difference.
Some disabilities can lead to complicated medical conditions as you age, which could make it more expensive or even impossible to purchase life insurance later on. If you have a disability and do not have serious complications, getting insured at a younger age with a whole life policy can secure financial protection for the rest of your life.
If you have a disability, life insurance coverage is still available in most cases. If you can’t get approved for coverage, there are other options such as having a caretaker get life insurance and naming you as a beneficiary, or non-traditional life insurance like guaranteed-issue. We recommend talking to a licensed insurance agent before you apply for coverage so they can help you compare rates and different insurance companies.
In most cases, having a disability won’t prevent you from getting life insurance coverage. However, if your disability affects your ability to work or has other serious health ramifications, you might be declined a traditional life insurance policy.
If you have shared debts or anyone relies on your income for their financial wellbeing, you should consider getting life insurance coverage.
Life insurance pays out a lump sum to your beneficiaries if you die. Disability insurance pays part of your salary if you are unable to work. Although some types of life insurance pay “living benefits,” that sum is intended for your loved ones and you do not use it yourself.
Rebecca Shoenthal is a life insurance editor at Policygenius in New York City, specializing in buying life insurance and the ins and outs of life insurance ownership. She's edited business books by the country’s top academics, politicians, journalists, thought leaders and CEOs, including venture capitalist John Doerr’s Measure What Matters, entrepreneur Scott Belsky's The Messy Middle, NYU Stern professor Scott Galloway's The Four, and technologist John Maeda's How to Speak Machine.
Rebecca has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.