Purchasing Life Insurance for a Dependent with Special Needs

Many families with special needs dependents use term life insurance along with a special needs trust to help provide financial security. In most cases, the trust is set up in your will and is funded by a term life policy.

There’s often debate about whether to buy term life insurance or a cash value policy, but Dave Ramsey and his team strongly recommend term life. Cash value policies charge higher premiums in the early years to cover the cost of lifelong coverage, but term life allows you to pay lower premiums and use the savings to pay off debt and build wealth. A 15- or 20-year term policy gives you time to become financially secure so that life insurance is no longer necessary in the long run.

To determine how much coverage you need, consider how much money your dependent would require each year. The Ramsey team suggests multiplying that amount by 10. For example, if they need $30,000 per year, a $300,000 term life policy (invested at a 10% return) could provide that income. If you assume a lower return, you might need a higher coverage amount. Since term life is much more affordable than cash value insurance, you can invest the money you save, building a nest egg over 20-30 years to support your dependent even after the policy expires.