Life Planning for Individuals With Disabilities: A Financial Planning Guide for Parents and Caregivers

Two adults, one seated in a wheelchair, review a document together near a desk.

Life planning for an individual with a disability can pose many challenges, depending on the specifics of their disability and the various unique circumstances. As such, it is important to approach life planning for such individuals carefully and strategically.

The person with a disability, their caretakers, or a combination of individuals may handle life planning. This typically involves budgeting for personal and medical expenses, identifying helpful financial resources, and preparing for end-of-life processes and expenses.

These efforts are important to offset staggering costs associated with disabilities. According to the CDC, disability-associated healthcare expenditures accounted for 36% of all healthcare expenditures for adults in the U.S. in 2015. Furthermore, expenditures per person ranged from approximately $12,600 to $27,800 depending on their state of residence.

Creating a Plan

It is important to create a specific plan to guide your life-planning efforts. This plan should include the following:

  • Assessing your financial situation: Take stock of what resources you currently have at your disposal and what assets you are likely to accrue.
  • Knowing the benefits you are eligible for: Research financial benefits that may apply to your situation. Common options are Medicaid, Medicare, Social Security disability benefits, and various state benefits. 
  • Considering ABLE accounts: These are savings accounts for people with disabilities and their families, which carry various tax advantages. 
  • Understanding wills and end-of-life options: Be aware of options such as wills, letters of intent, as well as guardianships and conservatorships.

It is also important to be aware of further financial resources that people with disabilities may have access to.

Special Needs Trusts

Special needs trusts (SNTs) are a type of trust that can allow people with disabilities to shelter their assets without losing eligibility for needs-based government assistance options such as Medicaid. They are also sometimes called supplemental needs trusts. Types of special needs trusts include:

  • First-party special needs trust: This is a type of SNT where the trust is funded by assets belonging to the beneficiary (often through inheritance or a settlement).
  • Third-party special needs trust: This is a type of SNT where the trust is funded by a third party.
  • Pooled special needs trust: This can be either a first- or third-party special needs trust and pools the assets of multiple individuals.

In addition to finding ways to protect assets for the use of the individual with a disability, it’s also important to determine how best to insure their life for the benefit of those who survive them.

Understanding Life Insurance

Choosing and managing a life insurance policy is a key aspect of financial planning for a person with a disability. Life insurance policies can be valuable to many people, but are especially useful to people with disabilities, as they can lessen the financial burden of loved ones following the passing of the person.

Types of Life Insurance

There are many types of life insurance, including:

  • Term life policies: Term life insurance policies are the most basic type of life insurance, which provides coverage over a specified period (called a term).
  • Individual whole life policies: Individual whole life policies provide coverage over the entirety of the insured individual’s life. This differs from the specific period of coverage provided by term life policies.
  • Joint life insurance policies: Joint life insurance policies cover the lives of two people for just one premium.
  • Survivorship universal life insurance: Survivorship universal life insurance policies cover two individuals, but only pay out to the beneficiary or beneficiaries after both have died.
  • Final expense insurance: Final expense insurance covers end-of-life expenses such as burial and legal costs. 
  • Family income policy: Family income policies decrease in value over time since benefits are paid out as income on a monthly basis. 

There are also further specifics relating to life insurance you should be aware of when planning for the life of a person with a disability.

What Are Insurance Policy Riders?

Insurance policy riders are amendments to your policy that add various insurance products or other specifics to your policy. It may expand the coverage provided by your policy or limit it. In many cases, you can remove a policy rider if needed. While these riders will incur additional costs, they can allow you to better address the unique needs of the holders and beneficiaries.

How Much Does Life Insurance Cost?

As of March 2023, the average cost of life insurance was $26 per month. This average was calculated using the scenario of a 40-year-old buying a 20-year, $500,000 term life policy in the United States as a model. However, depending on the specifics and severity of the disability, life insurance for a person with a disability may be more expensive than average. This will often be the case if the disability can reasonably be expected to shorten the lifespan of the individual.

How Do You Buy Life Insurance?

To buy a life insurance policy, you’ll follow these steps:

  • Determine how much coverage is needed.
  • Decide what type of policy will best fit your needs.
  • Compare insurance providers and rates.
  • Get quotes.
  • Fill out the application.
  • Complete any necessary interviews.
  • Schedule your medical exam.
  • Await approval and the underwriting process.

However, not all of these steps will be uniform for the acquisition of any policy. For example, some policies do not require a medical exam.

Life Insurance for Parents of Children With Disabilities

In the case of a child with a disability, it will be the responsibility of the parents, grandparents, or another guardian to handle concerns related to dependent life insurance. This process can pose unique challenges and considerations compared to an adult acquiring their own policy. 

However, life insurance for a child with a disability is still very important to protect the parents’ finances through an experience that can cause incredible financial hardship. While many of the same types of life insurance policies that work for adults will also work for children, some, such as a life insurance retirement plan, may be particularly beneficial to parents.

Benefits of Life Insurance for Parents

The benefits of life insurance for parents of children with disabilities include:

  • Reimbursement for lost salary over years of caring for a child with a disability
  • Ability to pay off medical debts
  • Ability to pay off various other debts
  • Ability to reimburse costs related to things like travel
  • Financial support during periods of mourning
  • Payment for other costs related to mourning, such as grief therapy

However, acquiring life insurance is not the only step that parents of a child with a disability may need to take to shield themselves financially.

Estimating Future Expenses

When estimating future expenses related to your child’s disability, you should take the following steps:

  • Identify the costs: Consider both regular living costs and those associated with the treatment and end-of-life steps. Carefully record your estimates of these costs.
  • Estimate the costs over the child’s anticipated lifetime: Work with medical professionals to assess what the likely costs will be related to various care expenses over the expected lifetime of the child.
  • Subtract government assistance: Determine what kind of government assistance you may qualify for and estimate the payout. Then subtract this amount from your expected costs.

Always ensure that you overestimate rather than underestimate as you build your budget—there may be hidden or otherwise unexpected costs.

Life Insurance Policies for Adults With Disabilities

Some adults with disabilities may be able to acquire and manage life insurance policies on their own, while others may need assistance, depending on the nature of the individual’s disability. In some cases, a caretaker may even need to purchase an insurance policy on their behalf.

Tips for People With Disabilities To Improve Life Insurance Eligibility and Reduce Premiums

A common hurdle for people with disabilities is the need to qualify for a comprehensive life insurance policy, as well as the need to acquire the most affordable premium. However, there are many options for improving your eligibility for life insurance, as well as possibly reducing your premium, including:

  • Comparing types of life insurance policies
  • Comparing individual policies, including working with an insurance broker who can quickly shop policies on your behalf
  • Taking steps to improve your physical health
  • Improving your credit report
  • Reviewing your Medical Information Bureau file to correct any mistakes

While a good life insurance premium may be difficult to acquire for some people with disabilities, there are many options available, as well as financial assistance to offset the costs. It will also be helpful to account for any additional fees and ensure you are not aiming for too much insurance coverage, as this can unnecessarily raise the expense.

Federal Benefits and Life Insurance

There are also many federal benefits that can help supplement the financial situation of a person with disabilities, as well as their loved ones. Most notable are Medicaid and Social Security benefits.


Medicaid is a program that provides healthcare funding for people in the U.S. who live in low-income households or live with disabilities. While having a life insurance policy doesn’t immediately disqualify you from obtaining Medicaid benefits, it’s important to understand that eligibility for Medicaid benefits is affected by your assets. 

Depending on the value of your insurance, it may disqualify you from receiving Medicaid benefits. Medicaid does not affect your eligibility for life insurance. However, it’s also important to keep in mind that Medicaid could receive part of your life insurance payout if the payment is designated as part of your estate following your death. 

Supplemental Security Income

Supplemental Security Income (SSI) pays Social Security benefits to qualified people with disabilities and their family members. Because this is a needs-based program, a life insurance policy may threaten your ability to collect it depending on its value. 

You can hold life insurance while benefiting from SSI, but typically the policy or policies cannot exceed a combined face value of $2,000 or the policy’s value will start to count as an asset. Assets worth over $2,000 can disqualify you from SSI eligibility. 

Social Security Disability Insurance 

If they’ve been employed long enough, meaning they’ve paid into the Social Security program, an individual with a disability can qualify for Social Security Disability Insurance (SSDI). There’s no asset limit to qualify for SSDI, meaning you can hold a life insurance policy of any size and receive benefits. However, if you’re still employed, SSDI has strict limits on how much you can make if you still want to qualify for this program. 

Understanding Life Insurance Payout Options

Not all life insurance policies are the same, and neither are the payout options. It’s important to be aware of what payout options may be available and which option is most useful for your unique situation. Life insurance payout options include:

  • Lump sum payment: With a lump sum payment, you will receive the entirety of the payment that you are due all at once.
  • Specific income payout: With a specific income payout, you will receive payments in installments.
  • Lifetime annuity: This provides retirement income over the lifetime of the individual.
  • Fixed period annuity: This provides income to an individual over a specified period. 
  • Retained asset account: This type of account allows the beneficiary to hold funds pending further financial decisions.

It’s important to consider the unique circumstances of the beneficiaries, as well as considerations such as tax implications.

Understanding Life Insurance Beneficiaries

All life insurance policies must have a beneficiary or beneficiaries listed. As such, anyone applying for a policy must understand some key factors related to the process of choosing and listing a beneficiary, including:

  • Can there be multiple beneficiaries? Some policies will allow for multiple beneficiaries, and most will allow you to declare a contingent beneficiary
  • What happens to a life insurance policy without a beneficiary? In this case, the benefit is paid out to the insured’s estate. 
  • Can a life insurance beneficiary be a minor? A minor can be listed as the beneficiary of a life insurance policy. However, while the benefit cannot be paid out directly to a minor, it can be held by a court-appointed custodian.
  • Can a life insurance beneficiary be changed? Typically, the beneficiary can be changed by the policyholder. However, in some cases of an “irrevocable beneficiary,” it is very difficult to change the beneficiary.
  • How do I choose a beneficiary? Understand the needs of the people in your life, as well as the parameters of your policy to successfully choose an appropriate beneficiary.

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