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Life Insurance and the Special Needs Trust: What you need to know

Aba parents special needs

We talk often about the importance of life insurance. Proper life coverage guarantees that the policy holder’s loved ones receive enough financial compensation to cover leftover debt, medical costs, and any final expenses. And it’s a supplement to help keep the family afloat financially without the policy holder’s income or ability to provide childcare, etc. But for the parents and/or guardians of special needs children, the importance of life insurance coverage is underscored.

With recent advancements in medicine and technology, special needs children are often outliving their parents, guardians and/or care givers. Published in the April 2018 edition of the journal Intellectual and Developmental Disabilities, a recent study1 found that while persons with intellectual and developmental disabilities are living longer, less than half of parents of these individuals plan for the long term.

According to the study, led by University of Illinois special education professor Meghan Burke, which surveyed 388 parents of individuals with intellectual and developmental disabilities, older and more educated parents tended to engage in more training/support and future planning.2 Over 77% of those special needs persons included in the study lived with a parent or relative, meaning that they depend on their family’s support financially if not also their physical care. The study also found a few key “barriers” to long-term planning for parents: “(a) lack of available services, (b) financial challenges, (c) reluctance of family members, (d) lack of time, (e) the emotional nature of future planning, (f) inertia, and (g) a lack of family members to be caregivers.”2 Despite the often emotionally difficult and complicated nature of long-term planning for the care of a special needs child in the event of a parent or guardian’s passing, there are many reasons why planning is important- the most important of which is what will happen to not only the special needs person but the people around them If there is no care plan. Without a plan in place, other siblings or family members may be forced to assume financial responsibility for the special needs individual’s care and make important care decisions for them.

With this financial burden in mind, it is important to look at long-term planning options and sources of funding for the special needs individual. Different states may offer their own programs to provide financial and/or care assistance, so it is important that a parent or guardian research what resources are available for them and the special needs individual. To avoid this issue, it is best that parents/guardians set up a Special Needs Trust as their life insurance beneficiary.3

There are two different types of these trusts though parents and guardians will likely be most interested in setting up a Third-Party Special Needs Trust, which is primarily for those planning ahead on behalf of a special needs loved one through a third-party, such as a professional trustee company. A trustee, such as a relative, will need to be assigned to the trust. Parents/guardians can even assign two trustees who will have to make joint decisions on how the trust funds are allocated. In the event that the trustee(s) pass away before the special needs individual, the trustee company will take over making care and financial decisions on behalf of the trust. These trusts should be set up with an attorney who specializes in them.

The next step is to evaluate the best kind of Life Insurance policy for the given situation. Life Insurance is a great source of funding for a trust to help the special needs individual afford their medical expenses and overall care should their primary caretaker pass away. For example, a Survivorship Life Insurance Policy (also known as a “second-to-die policy”) may be a good fit for a couple as the benefit will not be paid out until the second person passes away. This dual policy coverage is often less expensive. Additionally, Life Insurance policies come with a variety of add-ons and terms to custom fit a specific situation all of which can be discussed with a licensed insurance representative.

One of the most important details of setting up a life insurance policy meant to provide financial support for a special needs individual is to not list them as the beneficiary. It is important to understand the financial requirements around the types of aid available to the special needs individual. If they were to receive a lump sum from a life insurance policy payout as a policy beneficiary the added assets could make them ineligible for financial aid or care programs. It is also important to note that the Special Needs Trust will need to be set up before the life insurance policy.

Ready to talk about how life insurance can benefit you and your loved ones? The first step is to speak with an insurance expert, and that is where your American Academy of Pediatrics Insurance Program is here to help. Call us at (800) 257-3220 or visit us online here.


  1. Forrest, S. (2018, February 9). Study: Many parents of children with disabilities don't make care plans. Retrieved March 19, 2019, from
  2. Meghan Burke, Catherine Arnold, and Aleksa Owen (2018) Identifying the Correlates and Barriers of Future Planning Among Parents of Individuals With Intellectual and Developmental Disabilities. Intellectual and Developmental Disabilities: April 2018, Vol. 56, No. 2, pp. 90-100. Retrieved March 19, 2019, from
  3. Two Different Types of Special Needs Trusts. (2017, September). The Voice® Newsletter, Vol. 11, Issue 6. Retrieved March 19, 2019, from


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