How important is life insurance with special needs children?

BY ANDREW STEWART

Special needs are commonly thought about by what a child can’t do, milestones unmet, foods banned, activities avoided, or experiences denied. That doesn’t mean children with special needs aren’t smart, talented, or capable. Just that they have specific challenges that a “normal” child would not face. There are four major category types for special needs;

• Physical
• Developmental
• Behavioral/Emotional
• Sensory Impaired

These hindrances can hit families hard and may make special needs seem like a tragedy. Some parents will always mourn their child’s lost potential, and some conditions become more troubling with time. Other parents may find that their child’s challenges make triumphs sweeter and that their weaknesses are often accompanied by amazing strengths.

Although every special needs child is different and every family is unique, there are some common concerns that link parents. These include getting appropriate care, school, and financial support. Financial planning for any family is complicated, but the challenges rise to a new level when a child has special needs. Most people purchase life insurance to help settle debts and take care of loved ones after they die. For parents of special needs children, that means putting a plan in place to support your child into adulthood and beyond.

A good first step when finding a life insurance policy that meets your family’s needs is to estimate any future costs for your children. Estimating what their cost of care will be from the time your policy kicks in including what it could be for the rest of your child’s life. This might be overwhelming and talking to your current pediatrician or care specialist can help you get a handle on what future care costs your little one might incur.

Some expenses that you want to consider are:

• Therapy
• Food and basic needs or expenses
• An “emergency savings” for your child to access if needed
• Medical expenses including prescriptions, specialists, primary care providers
• A caregiver (both now, and if they’ll need a full or part-time caregiver as an adult)
• Transportation costs
• Schooling
• Life expenses (such as weddings, cost of housing, the cost of a service animal and their care)
• End-of-life expenses for you and possibly for them

A very important fact to remember is if the child is going to receive any income support from their provincial government, such as the Ontario Disability Support Program, any significant assets over the provincial limit will disqualify them from receiving the income support at all. The thought behind this is that they should be able to survive on their inheritance or investments alone. This means you will need to set up any financial support so that it doesn’t count against your child’s asset total according to the provincial government program providing income support. There are a variety of ways you can do this.

In Canada, there is a fund available from every major bank and provided by the government called the Registered Disability Savings Plan. As long as the child with a disability qualifies for the disability tax credit, they can get an RDSP, and any money that is put in either by the account holder or on behalf of the account holder is not only matched by the government, but is also exempt from counting your child’s assets when calculating their provincial income support cheque.

The Registered Disability Savings Plan is a great way to insure your disabled child’s future past their retirement age, but what about before that into their adulthood?

Consider setting up a special needs trust. A special needs trust is a legal entity that owns assets, be it savings, stocks, property, or benefits paid from a life insurance policy. A trustee manages the assets (such as investing them or dispersing them) and is not allowed to personally benefit from the trust. Your child also doesn’t directly own the assets, so that is why trusts are exempt and eligibility for any other income benefit they are receiving.

However, if you are setting up a trust for a child with special needs, you have to be careful about how the trust is structured. Depending on who manages the trust and how the money flows, it may be considered income and may disqualify them from income benefits.

If you are funding a trust through a life insurance policy, there are also a number of advantages and disadvantages to be aware of, depending on the life insurance policy you choose.