In its simplest form, life insurance is a contract between the policy owner and the insurer, where the policy owner agrees to pay a premium (either at regular intervals or in lump sums) for a specified period in exchange for the insurer's agreement to pay a sum of money to the policy owner's designated beneficiary(ies) upon the occurrence of the insured individual(s)' death or critical and/or terminal illness. The value to the policyholder is obviously not in the actual claim event (i.e., death or illness) but in the "peace of mind" achieved by knowing loved ones will be cared for at that time.
Based on these precepts, life insurance is an excellent funding source for a special needs life plan because it guarantees that money will be available when one or both parents are gone or incapacitated. Premiums can be budgeted and insurance amounts can be selected to meet the needs of each and every situation. Death benefits are usually probate free and income tax free. Various types of life insurance can be used in different situations and for different purposes depending upon the desired result. The parent of the child with special needs will want to consider not only how much life insurance to buy but whether individual, joint (first to die) or second to die coverage will best meet the needs of the child with special needs as well as those of the other family members. How much would one parent's income have to be supplemented to maintain the family's lifestyle? What additional needs arise if both parents die?
At Special Planning, we aim to assist you in considering all of these questions and making these determinations as they best suit your family's individual circumstances. Due to the complexity of federal and state laws, you may further require specially trained professionals to help you draft the necessary documents as you plan for the future of your child(ren) with special needs, and we can direct you to that specialized professional.
WHAT ARE THE DIFFERENT TYPES OF LIFE INSURANCE?
Universal Life Insurance: A combination flexible premium, adjustable life insurance policy. When buying a universal life insurance policy for special needs make certain you ask for a guaranteed death benefit rider.
Variable Life (VL) Insurance: A form of permanent life insurance in which premiums are fixed, but death benefits and other values may vary, reflecting the performance of the sub-accounts in an insurer's separate account. Most companies offer a guaranteed death benefit rider. If you are purchasing this type of insurance for a special needs trust, then you may want to ask for the guaranteed death benefit rider. Please review this with your financial professional and attorney.
This type of insurance assumes that premium payments are made at a stipulated level. The Death Benefit guarantee is subject to the claims-paying ability of the insurance company and does not extend to the separate account. Riders are an additional cost and are often subject to specific restrictions and limitations.
The investment return and principal value of variable sub-accounts will fluctuate. Your cash value, and perhaps the death benefit, will be determined by the performance of the chosen sub-accounts. Variable life insurance policies typically include mortality and expense risk charges, administrative fees, and fund expense charges.
Withdrawals may be taxable and subject to surrender charges. Policy loans and withdrawals will reduce the policy's cash value and death benefit. Loans are subject to interest charges.
Both the contract prospectus and the underlying fund prospectuses contain information relating to a variable life insurance product's investment objectives, risks, charges and expenses as well as other important information. Please contact your financial professional to obtain a copy of the prospectuses. Read and consider them carefully before investing.
Variable Universal Life: A combination of the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based on the value of equity investments, and premiums and benefits are adjustable at the option of the policyholder.
This type of insurance assumes premium payments are made at a stipulated level. The Death Benefit guarantee is subject to the claims-paying ability of the insurance company and does not extend to the separate account. Riders are an additional cost and are often subject to specific restrictions and limitations.
The investment return and principal value of variable sub-accounts will fluctuate. Your cash value, and perhaps the death benefit, will be determined by the performance of the chosen sub-accounts. Variable life insurance policies typically include mortality and expense risk charges, administrative fees, and fund expense charges.
Withdrawals may be taxable and subject to surrender charges. Policy loans and withdrawals will reduce the policy's cash value and death benefit. Loans are subject to interest charges.
Both the contract prospectus and the underlying fund prospectuses contain information relating to a variable life insurance product's investment objectives, risks, charges and expenses as well as other important information. Please contact your financial professional to obtain a copy of the prospectuses. Read and consider them carefully before investing.
Whole Life Insurance: A type of life insurance that remains in effect, if the premiums are current, until the insured dies. Whole life insurance builds cash value for the policy owner.
Term Insurance: Life insurance where the death benefit is paid only if the insured dies within the time period (term) during which the insurance is in force. Term insurance is sometimes called "temporary" or "pure" insurance since it builds up no cash value. It generally has lower premiums in the early years. If the insured survives until the end of the period, coverage ceases without value.
