Through many discussions I’ve learned that a common fear of parents who have a child with a disability is how the child will be supported financially when the parents pass away. I’ve come across this twice over the past six months so I figured it would be worth discussing.
The examples at our firm include one child who cannot work and another child who cannot hold a job. The parents understand that when they die their child will need financial support. They also know that if they were to die tomorrow, there would not be nearly enough money to provide a steady stream of income.
For peace of mind, the parents want to know that if they were to pass tomorrow, a guaranteed stream of income would be there for their child.
In both situations we suggested the parents consider a life insurance strategy to fund what will be an income stream for their child once they pass away. Life insurance is the best way to provide guaranteed cash flow.
In many situations the insurance need may only be temporary. Parents are confident that after a certain amount of time there will be enough money saved up to support their child in the event of their death. If this is the case, consider a term life insurance policy. For our client we implemented a 25-year term policy as she believed in 25 years, her and her husband would have enough money saved up to support their son when they pass away.
At times, permanent insurance may be a better solution. One common reason is because the parents know they will never be able to save enough money to support their child when they pass away. For our client we implemented a 20-pay guaranteed universal life policy. This means she will pay premiums for 20-years at which point the policy is fully paid up. This strategy worked for her because she did not feel comfortable making premium payments while in retirement. Further, no matter at what age she dies, the life insurance will pay out. This gave her peace of mind because the life insurance proceeds are the only way a guaranteed income will be provided to her son.
For estate planning purposes, consider depositing the insurance proceeds into a Henson trust for your child. A Henson trust is a type of trust designed to benefit disabled persons. Specifically, it protects the assets (in this case, insurance proceeds) of the disabled persons, as well as the right to collect government benefits and entitlements. Speak to your wills and estates lawyer to learn more.
It is important to have a conversation with your spouse/partner about what you want to have happen when you both pass away. Outlining your wishes and having a plan in place is the best gift you can leave your loved ones.