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Taking Care of an Incapacitated Family Member

Your clients—and the disabled relative—need sound financial plans.

By Janet Arrowood

When your clients are caring for someone with special needs, they must consider the financial and insurance needs of themselves and their charges. At a minimum, they must ensure that:

  • There is adequate life insurance coverage on the primary caregivers so the money doesn’t run out at their death.
  • The primary caregivers have adequate individual disability income (DI) insurance to maintain their lifestyle and continue to support the special-needs family member.
  • The caregivers are allocating enough money to retirement savings and future-care needs of the special-needs family member.
  • The caregivers have adequate long-term care insurance.

Nothing beats a comprehensive individual DI insurance plan.

When someone is caring for a family member with special needs, it is often difficult to plan past the end of the day or week. At the same time, without the caregiver’s services the special-needs person will require major sums of money or rely on government assistance.

Life insurance
Many people have little or no life insurance. If the people they want to benefit are able-bodied, they at least have the ability to earn a living. If the people they are caring for are incapacitated, the ability to care for themselves may be severely diminished. Life insurance is an essential financial planning tool for this group.

Without extensive services and financial support, the special-needs family member is often destitute and dependent on limited government funds to cover hefty expenses. Too often, these special-needs family members get caught in a trap. They have too much money to qualify for government benefits such as medical, income and long-term care benefits, but they have too little to provide the range of care they need and pay their bills.

Even with a special-needs trust, additional life insurance is almost always an excellent idea. The proceeds can buy a lot of top-quality care and cover expenses for them to lead as close to a normal life as possible.

Special-needs trusts are a great way to maximize the benefits an incapacitated person can get from government programs, but there are many limitations associated with these trusts. To maintain their lifestyle and that of their special-needs relative, they usually require a regular income. The best way to make up for lost income when the earner becomes disabled is to use DI insurance. Nothing beats a comprehensive, individual DI insurance plan, and this is something clients caring for special-needs relatives must understand. Too much is riding on their ability to earn an income.

Savings and investments
Your clients with special-needs relatives need to accumulate retirement funds and other assets for themselves and their incapacitated dependents. This can have serious impact on the amount of “fun” they can have today since so much more needs to be saved right now. Life insurance takes care of the needs when the caregiver dies and DI insurance pays if the caregiver is disabled. But what if the caregiver gets to retirement and is still healthy and alive?

Social Security, Medicare, and Medicaid may pay some of the expenses of the special-needs relative, but these may not be enough.

Long-term care insurance
There is disability during the working years and post-working years of your clients. For the second situation, your clients need an LTCI plan that provides nursing-home and in-home care options, and a cost-of-living adjustment as a bare minimum. Otherwise, there won’t be enough money to continue to provide for the special-needs relative and pay for long-term care for the caregiver.

Medicaid is really not an option here—there is someone else depending on the caregiver’s income. The caregiver might use something like an irrevocable income-only trust, but what if the trustee doesn’t see things your client’s way and is not around to help ensure the special-needs family member gets the income and care he needs?

Without a full complement of insurance and investment products, your client will not be able to meet the lifetime needs of a special-needs relative. Talk to him now so he can start planning for his future—and that of his special-needs dependent.

Janet Arrowood is a long-time contributor to Advisor Today. You can reach her at


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