According to the most recent survey conducted by the U.S. Department of Health and Human Services, 13.9% of children in the United States have special health care needs. These needs vary and can include a range of conditions including chronic physical, developmental, behavioral or emotional challenges. The special needs of these children typically require health and related services for an indeterminate and, often, an extensive period of time.
Future planning for a special needs child is a priority for many parents, but due to the scarcity of available planning information, many are unsure of how to move forward. It is imperative for advisors to understand the critical steps in insuring the lives of parents of children with special needs.
Understanding special challenges
Underwriting these parents can be a bit more complex than traditional underwriting. The two areas of complexity are the situational medical issues the parents themselves sometimes face and the unique aspects of financially underwriting a much longer term need.
Medically speaking, parents of children with special needs face a myriad of taxing issues that can manifest as situational anxiety and/or depression due to the stress and strains that are placed on them. Parents often seek medical attention to help them cope with these issues. Many use traditional psychotherapies along with medications to help them manage these situational diagnoses.
While seeking medical attention is the correct step to take, it can often lead to adverse consequences when securing life insurance to fund a special needs trust (SNT). “I work almost exclusively with special needs families,” says Mitch Weisbrot, CLU, a special care planner with MassMutual. “I estimate that 25% of the parents utilize medication to maintain emotional balance, which helps prevent stress-related illnesses. They shouldn’t be punished by underwriters for doing everything possible to live long, healthy lives.”
Many of these same parents also face additional financial challenges that can affect both their current and future planning goals. In traditional life underwriting, the need for personal coverage is typically a multiple of income or net worth. However, parents who have children with disabilities are trying to provide a lifetime of multifaceted and expensive care for individuals who will never be self-sufficient. The insurance proceeds are not intended to drastically improve a person’s living arrangement, but rather to maintain their current standard of living. “I tend not to use the ‘multiple of income rule’” explains Bill Vigliotte, senior vice president for Individual Underwriting at Mutual of Omaha. “Rather, I use the ‘does it make sense’ rule.”
When dealing with a child with special needs, there are many future costs that need to be considered. These costs can include, but are not limited to, care management, medical equipment, medication, speech and occupational therapy, social enrichment, legal fees and professional support. The expenses related to an individual’s holistic care might increase at a greater rate than inflation, and additional needs might come to light over time. For example, a child with muscular dystrophy will see a significant increase of associated costs. By age 10, the child may lose the ability to walk, and by his teenage years, that child may lose all mobility of the upper body. As a result, the child will have very few special needs-related expenditures as a toddler but will need a large sum of money as he ages.
The biggest challenge here is not only trying to predict the timeliness of the parent’s death; but also the life expectancy of the child, two factors that can lead to a prediction of the future needs and costs to support the child. For instance, as noted in the above example, a child with muscular dystrophy may only live into his mid-twenties, whereas someone with Down syndrome can live well past 50. Therefore, it is necessary for an underwriter to understand the unique circumstances of these families in order to underwrite these cases outside of the typical guidelines.