Updated September 6, 2023, at 10:59 AM
You may know there are several guaranteed issue life programs for adults, with many unavailable until over age 40. This leaves a gaping hole in our industry for parents of special needs or uninsurable children.
From a planning perspective, many families in this situation could vastly benefit by implementing a Special Needs Trust for long-term care planning for their loved one once they’re no longer here to care for their child by themselves. This type of planning can be very specialized and creative when done by an experienced attorney in this area. However, what about insuring the actual life of that child?
With guaranteed issue almost non-existent under age 40, there aren’t many solutions to fill this gap. At the unexpected end-of-life for a special needs or sick child, there could potentially be large amounts of medical bills, expenses, and unforeseen debt that could arise – leaving the parents or guardians at an increased risk for financial downfall. Therefore, extra consideration should be taken to insure the lives of those parents or guardians and the uninsurable child.
The Scenario
Dad, James, age 51, and mom, Jill, age 48, are the loving parents to Johnny, 12-year-old special needs son – causing him to be uninsurable for individual or child rider life insurance coverage. They’ve tried to obtain coverage for Johnny but were turned down multiple times as nearly all child riders in our industry involve some form of underwriting.
The Solution
Insure the lives of the parents and include a non-underwritten child rider with a future conversion option to triple the rider coverage! Here’s how that works:
- Dad buys a $200,000 20-year term life insurance policy on himself, with a $25,000 child rider on Johnny, making the total monthly premium $56.02 (preferred non-tobacco rates).
- Mom buys a $200,000 20-year term life insurance policy on herself, also with a $25,000 child rider on Johnny, making that total monthly premium $39.00 (preferred non-tobacco rates).
The Result
For less than $100 per month, the parents have covered Johnny from age 12 to 25 with $50,000 of life insurance; not to mention $400,000 in coverage on themselves for family protection! They’ve also set Johnny up for future insurability via the option to convert.
At age 25 (the 13th year of the term policy) Johnny can convert up to three times the amount on EACH child rider:
$25,000 x 3 = $75,000 individual permanent coverage (from mom’s term)
+
$25,000 x 3 = $75,000 individual permanent coverage (from dad’s term)
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$150,000 permanent coverage on Johnny’s life without going through any underwriting!
This solution could be incredibly impactful in a positive way for a family who is at a higher risk for unforeseen or premature loss of a child. Also, in the event mom or dad were to pass away prior to Johnny’s 25th birthday, the rider may be converted at their death.
For financial professional use only. This is the opinion of its author and not that of any other entity. This is not tax or legal advice and is not an endorsement of any company or product. Insurance product guarantees are based upon the claims paying ability of the issuing insurance company. Values expressed within this article are illustrative in nature and are for educational purposes only. Actual results will vary based on underwriting results and the specific product selected.