Life Insurance for Special Needs Children: A Difficult Topic

Having a child with special needs is both a blessing and a challenge.

One subject that is very sensitive to parents with special needs children is purchasing life insurance.

It is common for parents to purchase life insurance policies on themselves so that after their death something is left for their children to keep them financially stable.

But what some parents really struggle with when thinking about purchasing life insurance for special needs children is the possibility that they might live longer than their child.

No parent wants to even fathom the thought that they might outlive their child. However, depending on your child’s disability or health condition, this can be a sad reality.

What some parents decide to do, is take out a life insurance policy on their child, designating themselves as the beneficiaries.

Although this may seem callous to some, it can actually provide several benefits.

Important: If your child is under the age of 18, your best option will be to take out a policy on yourself and then add a child rider. This will provide up $25,000 in coverage for the child. Some carriers are more lenient than others on the questions they will ask about the child’s health but generally speaking, the restrictions will be less than on a standalone policy for your child.

If you choose to convert down the road to get the higher death benefit, no new health questions or underwriting will be required. More information on the child rider is HERE.

If your child is over the age of 18, options will be limited to guaranteed issue or accidental death benefit. Many of these will require a level of function from the child to sign the policy documents so this will depend upon the severity of their disability.

Income Replacement for Full-time Caregivers

Some parents choose to give up their job in order to care for their special needs child full-time.

Unfortunately, this results in lost wages and can make it difficult to save for retirement.

LightbulbBy purchasing a life insurance policy on your child with yourself as the beneficiary, you can recover lost income, at least to some extent.

We realize you might have trouble stomaching this idea, but the unfortunate reality is that caring for a special needs child can greatly strain your finances.

Selecting the Right Amount of Coverage

When shopping for life insurance with special needs children, you’ll need to consider the appropriate coverage amount to purchase. The coverage amount you choose will depend on the purpose of the policy.

If the intent of the policy is to recover lost income or provide funds for retirement, you’ll want to select a much larger death benefit.

You may need to meet with a financial advisor to determine what coverage amount will allow you to retire comfortably.

If you’re only taking out a policy to cover funeral and final expenses for your child, you won’t need nearly as much coverage.

Answer Honestly, but Don’t Over-Share

When filling out life insurance applications for your child, it’s important that you answer all medical questions honestly and accurately.

warningWith that said, you don’t have to volunteer additional health-related information if the application does not ask for it.

This is not being dishonest, it’s simply positioning yourself in a way that maximizes your chances of getting approved for a life insurance policy.

So don’t feel the need to divulge every possible detail you can remember about your child’s health if it does not come up on the application.

Avoid Naming Your Child as the Owner

One mistake to avoid is naming the child as the owner of the life insurance policy.

Often times children with special needs or disabilities receive some form of government assistance, such as Medicaid.

warningThese assistance programs have very low asset thresholds. The presence of a whole life insurance policy with cash value can result in termination of government assistance.

As you can probably imagine, this could have disastrous consequences for the child and their caregiver.

If you need help regarding government benefits for special needs children, we suggest considering the Special Needs Alliance, a non-profit organization.

Life Insurance with Special Needs Children, Term or Whole Life?

There are two types of life insurance, term and whole (or permanent).

Term life insurance provides coverage for a specific time frame, such as 15 years. Once the term has expired, the life insurance company can decide to renew the policy or not renew it.

Whole life policies provide coverage for the life of the insured as long as the premiums are paid according to schedule. It guarantees coverage and benefit payout regardless of how much health status declines.

As mentioned earlier, whole life policies accumulate cash value whereas term policies do not.

Finally, term life insurance is less expensive than whole life policies since they lack cash value.

Now that you know the major differences, the question becomes, which type is best for children with special needs?

Keep in mind each child and situation are unique. If your child has significant health conditions that are likely to worsen over time, a whole life policy may be your best option. Getting approved again down the road may be more difficult once their condition has worsened.

Whole life policies will provide guaranteed coverage for the entire life of your child no matter what happens, so long as the premiums are paid.

If your child’s health is stable and not likely to decline with time, a term policy may be acceptable. Consult with your trusted life insurance broker to help determine what is best for your child and family situation.

What are Graded Life Benefits?

Due to the risks associated with insuring children with certain disabilities and medical issues, some life insurance companies will adjust their policies with graded benefit payouts.

Under normal circumstances, most policies provide a fixed death benefit payout once the insured passes away.

With graded life benefits, the payout amounts vary depending on how long the insured survives.

For example:

If the insured person dies in the second year of the policy, only 50% of the death benefit may be paid.

If death occurs in the 3rd year of the policy, the payout is 75%  of the death benefit.

If death occurs during or after the 4th year, the death benefit is paid in full.

If the insured dies within the first year, the premium with interest is returned.

This is just an example to demonstrate the general structure of a graded death benefit. Graded policies may vary from one company to the next.

Don’t Take No for an Answer on Life Insurance for your Special Child

Some life insurance agents may tell you that children with certain disabilities or health conditions cannot be insured.

Don’t let this deter you from seeking the coverage that you and your family need.

With alternative options like graded policies that we just talked about, there’s a good chance you can qualify for some type of coverage.

At Simple Life Insure, we pride ourselves on removing much of the stress associated with buying life insurance with special needs children.

Always remember that premiums can vary widely between companies.

That’s why it’s SO important that you understand how the different carriers might view your unique situation. Shopping around will result in you getting the best life insurance coverage for your needs at an affordable premium.

Please keep in mind that underwriting guidelines can and DO vary greatly between carriers and this is often a complicated maze for consumers to navigate.

The secret to getting the lowest rate is placing you in a policy with the company who views your child in the most favorable light.

The truth is, our quote engine you see is much more applicable to “normal” life insurance rate shopping. When applying for life insurance on children with special needs, you absolutely MUST work with a broker who understands the complicated guidelines and will fight on your behalf to get the lowest rate for your situation.

We are one of the rare independent brokers that only sells life insurance so we’ve gotten pretty darn good at it.

If you have any questions or are ready to get started, please contact us.

We are here to help and will never pressure you in any way. You and your family deserve that respect on such an important decision.


  • Ty Stewart

    Ty Stewart is a founder and contributor of He started researching and studying about life insurance when he got his first policy for his own family. He has been featured as a life insurance expert speaker at agent conventions and in top publications. As an independent licensed life insurance agent he has helped clients nationwide to secure affordable coverage while making the process simple.

  • Bennett Bier

    I’m Bennett Bier, owner, author and fact checker of Simple Life Insure. I believe working with a small independent broker offers consumers more personal attention and superior customer service. As an independent agent licensed in all 50 states and the District of Columbia I have access to many of the top A+ rated life insurance carriers. This lets me locate a plan that you will qualify for while saving you money at the same time. Over the years I have mastered the art of underwriting, getting approvals even for my highest risk clients. I’m also likely the person that will answer the phone when you call.