Insuring the parents of children with special needs: 6 critical steps for advisors

By Barry Goldberg

Independent Life Brokerage


There is both an art and a science component to underwriting a life insurance policy. If an advisor understands the art component, he or she can increase the odds of a better outcome for the client.

According to the most recent survey conducted by the U.S. Department of Health and Human Services, 13.9 percent of children in the U.S have special health care needs. These needs vary and can include a range of conditions including chronic physical, developmental, behavioral, or emotional challenges. The special needs of these children typically require health and related services for an indeterminate and, often, an extensive period of time.

Future planning for a special needs child is a priority for many parents, but due to the scarcity of available planning information, many are unsure of how to move forward. It is imperative for advisors to understand the critical steps in insuring the lives of parents of children with special needs.

Underwriting these parents can be a bit more complex than traditional underwriting. The two areas of complexity are the situational medical issues the parents themselves sometimes face and the unique aspects of financially underwriting a much longer term need.

Medically speaking, parents of special needs children face a myriad of taxing issues that can manifest as situational anxiety and/or depression due to the stress and strains that are placed on them. Parents often seek medical attention to help them cope with these issues. This can include traditional psychotherapies along with the taking medications to help them manage these situational diagnoses.

While seeking medical attention is the correct step to take, it can often lead to adverse consequences when securing life insurance to fund a special needs trust (SNT).

“I work almost exclusively with special needs families,” said Mitch Weisbrot, CLU, a Special Care Planner with MassMutual. “And I estimate that 25 percent of the parents utilize medication to maintain emotional balance, which helps prevent stress-related illnesses. They shouldn’t be punished by underwriters for doing everything possible to live long, healthy lives.”

Many of these same parents also face additional financial challenges that can affect both their current and future planning goals. In traditional life underwriting, the need for personal coverage is typically a multiple of income or net worth. However, parents who have children with disabilities are trying to provide a lifetime of multifaceted and expensive care for individuals who will never be self-sufficient. The insurance proceeds are not intended to drastically improve a person’s living arrangement, but rather to maintain their current standard of living.

“I tend not to use the ‘multiple of income rule’” explained Bill Vigliotte, Senior Vice President Individual Underwriting for Mutual of Omaha. “But rather, I use the ‘does it make sense’ rule.”
When dealing with a special needs child, there are many future costs which need to be considered. These costs can include, but are not limited to, care management, medical equipment, medication, speech and occupational therapy, social enrichment, legal fees, and professional support. The expenses related to an individual’s holistic care might increase at a greater rate than inflation, and additional needs might come to light over time.

For example, a child with muscular dystrophy will see a significant increase of associated costs. By age 10, the child may lose the ability to walk and by their teenage years, that child may lose all mobility of the upper body. The result is a child that needs very minimal expenditures on equipment as a toddler but who requires a large sum of money to be spent as they age.

The biggest challenge here is not only trying to predict the timeliness of the parent’s death, but also the life expectancy of the child, two inherent factors which lead to a prediction of the future needs and costs to support the child. For instance, as noted in the above example, a child with muscular dystrophy may only live into their mid-20s, whereas someone with Down syndrome can live well-past 50. Therefore, it is necessary for an underwriter to understand the unique circumstances of these families in order to underwrite these cases outside of the typical guidelines.

Life insurance is the most common financial tool that is used to fund a third party special needs trust. For many families, making modest premium payments for life insurance may be the only way they can leave a large sum of money for the benefit of their special needs family member. The amount of coverage and the cost of coverage for your clients are based on an insurance company’s financial and medical underwriting standards, so knowing how to strategically approach the underwriting process can make a significant difference in the type, amount, and cost of coverage that is obtained for each client.

There is both an art and a science component to underwriting a life insurance policy. All too often, life insurance carriers are primarily focused on the science side. They follow the underwriting guidelines provided in their manuals without any regard for the unique factors that affect the case. Unfortunately, this can lead to unfavorable underwriting offers and subsequently higher premiums for an already stretched client. However, if an advisor understands the art component — divided into 6 areas below — he or she can increase the odds of a better outcome for the client.

1. Knowing the underwriters at the carrier is critical. Underwriters are just like you and me. They have life experiences and unique personalities that affect their outlook on things. At some insurance companies, underwriters are given discretion to be creative at times and work outside the prescribed guidelines if they feel a case warrants it.
If you know which underwriter is more compassionate or which underwriter is the parent or relative of a special needs child, this can make all the difference.

2. Presentation counts. Make a good impression by including a cover letter to clearly describe the desired outcome. Make sure to outline the medical issues and how you believe they should be viewed. Address medical or financial issues up front and provide a clear explanation of all the positive factors that should mitigate these risks.

Putting this information in a cover letter helps prevent the underwriter from forming a bad first impression.

3. Know your client. The more you know about your client, the better you are able to defend that client. Asking the right questions will provide valuable information to use when negotiating the best offer.
  • What do you know about his or her involvement in the community?

  • Have they missed any time at work due to anxiety or depression?

  • What activities does he or she participate in and what enjoyment do they receive from it?

  • Does he or she have a happy family life? What type of special needs does the child have?

  • How will it progress and what resources will be needed?

  • Will the child relocate to a different state (i.e., Alabama to California) to be with local relatives should the parents die?
The more information you can find out about your client, the more likely that you will be to build a story that will help an underwriter feel more comfortable assessing the risk.

4. Don’t argue. Negotiate. Arguing for an offer usually ends up with limited results. A few years ago, the argument approach was very successful; however, as reinsurance started discovering an increase in unwarranted exceptions, audits to the front line insurance carrier became more prevalent. As a result, carriers need to better document why they are deviating from their guidelines and making a more aggressive offer than they normally would. Thus, you need to negotiate your way to a better offer.

Also, make sure to understand and point out what the standard mortality is for your client’s age and negotiate to a conclusion that your client’s underlying medical condition does not significantly increase his or her mortality from the standard population.

5. Read the medical records. It is not unusual for medical records to contain incorrect or incomplete information. Doctors write information for themselves; they do not consider that someone else may read or interpret their notes down the road.

Although most agents and advisors are not given direct access to their clients’ medical records, clients and/or new business expeditors should review all medical records prior to underwriting submission to make sure the information is consistent, logical and pertaining to the correct patient.
6. Deliver. Trials are the best method for placing today’s big cases. However, too many people just ship records out to every carrier without considering whether they would even place the case with that carrier.

Limit your trial to the top few companies that are most likely to accept your case based on their manual and the carrier that prices best, should you get the desired offer.

Once you get what you want, place the case. Underwriters see thousands of trials a year and most do not get placed. If you stand out as a person who places your trials, the underwriter is likely to spend more time on the case to find credits and argue with his medical staff (on your behalf) to get you the offer you need.

In closing, when it comes to underwriting the unique circumstances faced by the parents of special needs children, it is critical to know how to navigate the underwriting process to secure the best offer and the best type of coverage to meet your client’s planning goals.

According to Vigliotte, “It seems to me this is an area not traditionally addressed by either agents or underwriters, so rules and guidelines will be written as we go. This approach provides a solution for the common good, which relieves a burden that otherwise would be passed on to the government, and when you cut through it all, is really the reason life insurance was invented.”