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Life insurance for people with Down syndrome

More than 250,000 Americans live with Down syndrome, a chromosomal disorder that causes cognitive and physical challenges.

Some people with Down syndrome can live independently. However, in many cases, family members -- especially parents -- are responsible for their care. This can create a complicated situation when it comes to life insurance.

Life insurance can be a valuable tool to provide financial assistance for surviving family members and caregivers who have dedicated themselves to caring for a loved one with disabilities. The insurance underwriting process often comes with its own unique set of challenges when the potential policyholder has Down syndrome or another pre-existing condition.

If you or a loved one is in this situation, here's what you should know.

 

Can you get life insurance when you have Down syndrome?

The insurance underwriting process for someone with Down syndrome is markedly different than for someone who doesn't have a pre-existing condition. An insurance company will require medical records to determine if someone with Down syndrome is insurable.

Three factors that insurers use to determine whether to grant a policy are: 

  • Health assessment, including looking for pre-existing conditions
  • Whether the person can care for himself or herself
  • Life expectancy

Some people with Down syndrome may deal with other health issues, such as blood disorders and spinal conditions. Those will factor in the underwriting process.

Insurers rate the applicant taking all of that information into account. Super Preferred is the highest rating. It also has the lowest rates. Meanwhile, Standard and Substandard are the lowest grades. Those have the highest premiums. Depending on your rating, you can pay double or more for insurance than people with the best ratings. 

Some insurers may also table-rate a person with a pre-existing condition. That means premiums will be based on pricing for the standard rating plus 25%.

"Life insurance options are available for people who have low to mild forms of Down Syndrome. Some carriers have a minimum age for people with Down Syndrome to apply, like age 10," says John Barnes of My Family Life Insurance, an independent insurance agency in Andover, Mass.

Barnes says that group life insurance may be an option for someone with Down syndrome who is employed. However, Barnes says that can be tricky. Parents need to maneuver the situation carefully. A policy may disqualify someone with Down syndrome from government assistance. However, this only may be a risk if the person has a whole life insurance policy with cash value.

 

How do parents buy life insurance for a child with Down syndrome?

For parents seeking to insure a child with special needs, it's critical to work with an agent who specializes in high-risk life insurance. You'll likely have to shop around with several different carriers. An experienced agent can guide you through the process.

After you find a qualified agent, provide any requested medical information that the insurance company requests. The insurer will also likely check the Medical Information Bureau database to confirm any information provided and may request medical records.

Once the insurance company has all the necessary information, it'll decide about whether to:

  • Approve a policy for your child for the requested death benefit
  • Grant a lower policy amount 
  • Deny the application

If the insurer approves a policy for your child, you can list yourself or another trusted family member as the beneficiary.

Barnes says timing is an important consideration for special needs families applying for life insurance.

"The best time for a parent to purchase life insurance is when the child is young. One reason is that no power of attorney or guardianship documentation is required. Additionally, premiums will be much lower and are carried through into adulthood," he says. "When a child is an adult, a parent will have to supply power of attorney or guardianship paperwork. It is important to note that not all carriers allow the power of attorney or guardian to own the policy."

In these cases, it's crucial that parents establish a trust.

 

How a parent's life insurance can help a child's future

Gordon E. Conwell, III, who specializes in high-risk life insurance at Gordon E. Conwell Associates, a family-owned and operated insurance agency in Pennsylvania, says even more important than insuring a child with Down's syndrome is for "the parents themselves to have life insurance with a special needs trust as the beneficiary. This special needs trust would dictate exactly how life insurance proceeds should be used to care for their child in the event of their death."

Conwell says these parents should "have a sufficient amount of permanent life insurance or convertible term life that could be exchanged for permanent coverage later so that the child can be cared for in the manner that the parents have pre-determined to be best. This should be a bigger priority than insuring the child, in my opinion."

Naming your child as a beneficiary on your policy could put them at risk of losing government assistance, such as Medicaid or Supplemental Security Income. Anyone who receives a gift or inheritance over $2,000 is no longer eligible for benefits. There's also the risk that Medicaid may attempt to get reimbursed for benefits it paid if your child receives a significant insurance payout or has a cash value policy. In the latter case, establishing a first-party special needs trust can protect your child from losing government benefits.

That’s why establishing a special needs trust is crucial. 

To set up a special needs trust, work with an experienced special needs attorney. Both the Special Needs Alliance and the Academy of Special Needs Planners offer resources to help you find a qualified professional.

 

Instant approval and pre-existing conditions

Some consumers who apply for term life insurance might be able to get instantly approved.

This process accelerates the standard insurance underwriting process by asking a life insurance applicant to provide information about their:

  • Medical history
  • Age
  • Weight and height 
  • Lifestyle

The insurance company then uses this information to predict life expectancy and risk and immediately decide whether an applicant is approved.

However, someone with Down syndrome will require additional underwriting. So, instant approval isn't an option.

 

Permanent vs. term life insurance

Permanent life insurance, such as whole and universal life policies, provides benefits that never expire as long as the policyholder pays the premiums. These policies also include a cash value component. Cash value allows the person to withdraw money already paid into the policy. Term life insurance is the opposite. There's no cash value component and benefits expire at the end of a specified term. Terms can range anywhere from five to 30 years, depending on the policy.

Barnes says permanent life insurance is the best option for someone with Down syndrome because it will last a lifetime.

"Term life insurance is generally inappropriate because if the child outlives the term, there is no guarantee he or she can qualify for another term policy," Barnes says. "The parent will have to purchase a guaranteed issue life policy at this point, which will cost much more than if they simply applied and purchased insurance when the child was much younger."

 

Final expenses and burial insurance

Final expense insurance, also known as burial insurance, is another option for people with Down syndrome or other pre-existing conditions who don't qualify for traditional life insurance.

Final expense insurance provides a cash benefit that loved ones can use to pay for final expenses after a family member's death. These policies can be simplified issue, which involves a life insurance applicant answering a few medical medications. Or, it can be guaranteed issue, which doesn't include any medical questions. Both of these policies don’t require a medical exam. They also feature a "graded death benefit," which means if the policyholder dies within the policy’s first three years, the death benefit will be lower.

"Guaranteed issue life insurance is available for people with Down Syndrome. This type of life insurance has no health questions. You apply, write a check for the premium and you have life insurance. Premium rates for guaranteed issue life insurance are usually higher than for underwritten life insurance. The reason is that the carrier has to lower its risk, and the way they do that is by charging a higher rate on guaranteed issue life insurance," Barnes says.

 

Life insurance riders for people with Down syndrome

Riders allow policyholders to add supplemental coverage to their life insurance. That may include coverage for long-term care or critical illness. 

Barnes says insurers generally won’t allow life insurance riders for someone with Down syndrome. However, parents may be able to add a child term rider to their own life insurance policy.

"Some child riders are guaranteed issue or have very limited underwriting. If a parent goes this route, it is very important that the child term insurance has the option to convert to a permanent-type policy when the child is older with no evidence of health insurability," he says.

Planning for the long-term care and insurance needs of a child with a disability can be challenging. That's why it's necessary for families to be thoroughly informed as they go through this process and work with experienced professionals like a special needs attorney and high-risk life insurance agent. 

Barnes says that parents also should be aware of the ABLE Act, which allows them to save for their child in a tax-advantaged account without affecting their eligibility for future government aid.

Many parents with a special needs child worry about what will happen after their gone, but by making preparations and financial plans now, you can ensure your child receives the care they need in the future.

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