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Life insurance for special needs children

How parents can use life insurance to protect their kids with special needs.

Rebecca Shoenthal author photoLogan Sachon

Rebecca Shoenthal & Logan Sachon

Published August 28, 2020


  • Children with disabilities don't typically need their own life insurance policies if they do not provide income

  • For parents and caretakers of children with disabilities, naming an adult child (over the age of 21) as 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 will help cover funeral expenses if the unimaginable happens

If you are the parent of a child with special needs, 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 common, but there are circumstances where the second type of policy could make sense, too, to ensure that your child is taken care of financially no matter what.


Life insurance for parents, to protect your special needs child

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

There are two 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. Many people only need to provide for their children up to a certain point; after that, the children will be adults, working and paying their own expenses.

But if you have a child with special needs who is likely to need care into adulthood, a whole life policy may be right for you. Many people with special needs children choose whole life because the policy doesn’t expire; as long as you pay the premiums, your child will be able to receive a benefit no matter when you die.

Naming your child as your life insurance beneficiary

Insurance companies can’t pay out benefits to people under the age of majority (18 to 21, depending on your state), so if your child is still a minor, you’ll need to name a custodian of the funds if you want your child to be the beneficiary of your life insurance policy. If you don’t name a custodian in the policy, the court will appoint one, which could result in the funds being tied up.

The other option is set up a special needs trust for your child and make the trust the beneficiary of your death benefit.


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Special needs trusts and life insurance

A special needs trust, also called a supplemental needs trust, is a type of trust specifically designed for life insurance and estate beneficiaries who are unable to handle their own finances and care.

Special needs trusts allow you to leave specific instructions for how the funds should be used. A named trustee manages the funds within your specifications; a co-trustee, such as a lawyer or firm, will ensure 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.

A lawyer can help you create and customize your trust for your specific situation, including deciding how you want the funds to be used and the names of the trustees and co-trustees to administer the funds.

You can change the beneficiary on your life insurance policy at any time, so you do not need a trust set up before you apply for life insurance.

Survivorship life insurance for parents of special needs children

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 whole life insurance policy that covers both parents.

Joint life insurance policies are whole life insurance policies that name two people as the insured. There are two types:

  • Survivorship life insurance, also called second-to-die joint life insurance, is a type of joint life insurance policy that pays out only once both policyholders have died. This kind of policy may be cheaper than individual policies or may be a way to provide coverage to a parent who can’t qualify for their own individual policy.

  • First-to-die joint life insurance pays out when the first of two policyholders dies and doesn’t pay out when the second dies. This type of joint policy could leave your child without resources when the second parent dies, and likely isn’t a good option for parents of special needs children.

Life insurance for your special needs child

Life insurance is meant to act as income replacement, and children don’t earn income, so it almost never makes sense to purchase life insurance for a child.

But if you have a child with a complicated medical background or other special needs, it may make sense to have some life insurance coverage for your child:

1. Life insurance provides money for funeral expenses and time to grieve

The average funeral costs about $10,000. If you couldn’t afford to pay for a child’s funeral or keep up with bills while you grieve, a life insurance death benefit could make a huge difference. Either a child rider or a whole life policy could provide a death benefit if your child dies.

2. Life insurance protects your child’s insurability

Some medical conditions could mean that it could be expensive or even impossible for your child to purchase life insurance as an adult. Insuring them as a child is one way to ensure they’ll always be able to have a small amount of life insurance.

How to buy life insurance for your special needs child

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

  1. You can purchase a children’s whole life policy. This is a type of permanent life insurance made specifically for children. Benefit amounts are generally $50,000 or less, and as long as you (or your child) pay the premiums, the policy doesn’t expire.

  2. You can add a child rider to your own policy. This is the best option for most people. These riders provide $5,000 to $25,000 of coverage per child for about $20 to $200 per year, depending on your insurance company and benefit amount. Some insurers allow you to convert the rider to a whole life policy when the rider expires usually when your child turns 25 (or you turn 65).

A Policygenius agent can help you decide what kind coverage is right for your family and your child. By figuring out which type of life insurance coverage is right for your child with special needs, you can ensure they are financially protected even after you’re gone.

Life insurance for special needs children FAQ

Is whole or term life insurance coverage better for parents of special needs children?

It depends. For most parents, a term life insurance policy is the best option because it’s more affordable and offers coverage while their children depend on their income most. But for parents of children with disabilities who will need care and financial support into adulthood, a whole life insurance policy might make the most sense (if you can afford the premiums).

Should you name a minor child as a beneficiary for your life insurance policy?

In most cases, no. While it’s perfectly legal in most states to name a child as a policy beneficiary, age of majority laws prevent life insurance companies from paying the death benefit directly to minors. Instead, designate an adult you trust as your beneficiary and make sure you create a will so your child is protected financially.

What is a child rider?

Child riders are low-cost additions to existing life insurance policies. A single child rider will usually cover all current and future children in your household for a small premium. If you’re looking for financial protection for your child, riders are usually a more sensible option than purchasing child life insurance.

About the authors

Insurance Expert

Rebecca Shoenthal

Insurance Expert

Rebecca Shoenthal is an insurance editor at Policygenius in New York City. Previously, she worked as a nonfiction book editor. She has a B.A. in Media and Journalism from the University of North Carolina at Chapel Hill.

Insurance Expert

Logan Sachon

Insurance Expert

Logan Sachon is the co-founder of The Billfold, a groundbreaking personal finance site for millennials that was named one of Time's 25 Best Blogs of 2012. Her work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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