Life Insurance for Special Child Parents

Special Children’s requires support for day to day care even after adulthood. This life-long dependency increases concern for parents knowing that they might not be there for lifetime to take care of their special child needs.

Life Insurance planning for such parents demands a careful planning as there can be many legal issues involved considering the child may never be in a state of taking decisions. Any mistake in making the child direct beneficiary can deprive him/her from future benefits.

Although, there are many type of insurance plans which can be considered for meeting various requirements, for special child the selection requires the same importance as other financial consideration. Pros and cons of each plan need to be understood in detail before making any decision. Following category of insurance plans can help in meeting the needs of special child at various stages but each one has to be considered only after analyzing specific requirements:

Whole Life Insurance: These types of insurance plans have benefit of providing funds at any time during the life of the parents. Since the maturity age in these plans is very high, whole life plans has been very successful in estate planning in various countries. It can be a good source for funds at later years of life.

Disadvantage: In India we are yet to see low cost whole life plans. Also, the time horizon required for building the cash value is very high and traditional plans do not fetch higher returns. On other hand ULIPs have exposure to various markets which can fluctuate cash value heavily and requires expertise to derive the benefits.

Term Insurance– Undoubtedly, the cheapest form of insurance which can meet the funds requirements when you are not there. How the proceeds will go to the special child have to be planned in consideration with legalities involved.

Disadvantage: There will be situation when parents will outlive the term of the policy. Some companies have option of converting term insurance into a savings plan in last few years of the term but maturity benefits should not be a deciding factor. In all probabilities, a term insurance is always the best means to plan for the financial needs in case of contingencies.

Joint Life Policies: These types of policies insures mother and father in one policy and in case of demise of either the policy continues with benefit accruing to the other parent. The policies are somewhat cheaper than buying two separate policies.

Disadvantage: Most of these plans are traditional and so the returns are not very attractive to beat inflation. In such situation, parents have to consider the real benefit which will be available to the surviving spouse to meet the needs of the special child.

Special Policies: There are policies like Jeevan Aadhar and Jeevan Vishwas from LIC which specifically cater to handicapped dependents. Jeevan Aadhar is a limited payment whole life policy which provides 80% of the amount as annuity to the beneficiary after the death of the policyholder. Contrary to this Jeevan Vishwas is an endowment assurance plan which also provides same benefits as Jevaan Aadhar. The major difference between the two plans is that Jeevan Aadhar doesn’t have a maturity since it’s a whole life policy and so is beneficial in building a higher cash value for later years of life. Both these plan on death and on maturity provides amount partly as lump-sum (20%) and rest as annuity to the beneficiary.

Disadvantage: Both these policies are traditional plans so premium payout will be higher. The bonus payout is high in Jeevan Aadhar (Rs 100 per 1000)  as compared to other traditional plans but is there till a specific age. Also, annuity rates in India are very low and are not linked to inflation. But, combined with a term plan, these policies are beneficial in providing regular funds to meet ongoing expenses of the special child.

Thus, life insurance planning is a complex issue in case of special children’s families and need to be planned carefully. Common mistakes like choosing a general child policy and making the special child as direct beneficiary jeopardizes the child future as he/she may not reap the benefits due to the life-long disability. Also, unlike US, insurance companies in India except LIC have not recognized the special needs planning yet. A Financial Planning approach helps in estimating the future expenses based on the child specific requirements and selecting the right insurance plan for dealing with contingencies.