Life Insurance Is Critical for Special Needs Planning

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In implementing an estate plan for the benefit of your family, it is critical to take into consideration the role of life insurance. Life insurance can provide a source of liquidity for your family, including a child with special needs, following a death. A special needs trust without adequate funding will not properly care for your child with special needs.

There are many forms of life insurance and it is important to take into consideration the form of insurance that best fits your needs. When a child with special needs is involved, it is important that you have insurance that will be available at the time of death.

A term policy is much less costly than other forms of insurance, however, it is the least likely to be available at the insured’s death. This is because term policies typically last for a term of years with a level premium during that term or through the time the insured reaches a certain age, such as age 70.  As you get older, with most forms of term insurance, the cost of the insurance (the premium) rises dramatically. Both due to restrictions in the policy which terminate the policy at a certain age and since it becomes prohibitively expensive as you get older, these policies are often dropped or terminated long before an insured’s death. Therefore, it is important to consider the role of permanent insurance in your estate plan. There are several kinds of permanent insurance. For example, guaranteed universal insurance (the kind which provides a death benefit with little cash surrender value) and whole life insurance, which can be an investment vehicle for your family, can play an important role in planning. This is a more costly form of insurance, however, it is more likely to pay when the insured dies, and in some cases can be used as an investment.  Where cost is a factor, a term policy which is convertible in the future to a permanent product can be utilized.

No matter what the form of insurance, it is not enough to have appropriate planning documents, without confirming with a financial advisor that there are sufficient assets in the special needs trust to adequately provide for your child with special needs.  Where there is a shortfall, insurance can fill the void.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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