Life insurance for the disabled
This title includes two slightly different topics: how we can make provision for the disabled we leave behind and life insurance for disabled individuals. In theory, it's easy for parents to make a will which makes provision for any disabled children or relatives. But the usual run of financial institutions are introducing elements of confusion into this process. When you open a bank account or buy different types of investment product, the sales people point out the option to name the beneficiary so that, when you die, the value of the product or money in the account goes straight to the nominee. This bypasses the will and the sometimes slow-moving probate system for handling the estate which sounds an advantage. But if you give a large cash sum directly to a disabled child, this can lead to a loss of government benefits. Worse, suppose you made a will setting up a trust fund to benefit the disabled child but then nominated others to receive all your assets. All the nominations would take effect and there would be no cash to fund the trust fund. So the next time someone talks to you about opening an account or making an investment, do not nominate children as the beneficiaries or individuals who have intellectual disabilities. This will always lead to the court appointing individuals to hold the funds which is expensive. Anyone with a disability needs special consideration so that benefits and access to government services are protected.
When it comes to an application by a disabled person for life insurance, the success will depend on the following factors:
- how severe the disability;
- the extent to which the daily routines are affected;
- whether the disability predisposes the applicant to future illnesses and disorders;
- the impact of the disability on life expectancy..
So let's take a number of examples. If a person has an accident which produces permanent disability but does not prevent an independent lifestyle, there should be little difficulty is securing life insurance at the usual rates. But an individual who's rendered dependent and is vulnerable to the possibility of life-shortening diseases is likely to experience problems in finding any insurance cover. This is not discriminatory. Everyone who has serious health problems will face the same problems. In part this reflects the challenge for the disable person to make the premium installment payments. Put another way, if this individual has capital, it would be better to invest it than to buy a conventional life insurance policy.
Mental disabilities raise a completely different set of problems. To enter into any form of contract, both parties must have the capacity to understand the terms of the agreement. If one party is incapable of understanding, he or she cannot enter into a binding contract. Anyone appointed to look after the disabled person's affairs, can enter into the agreement, but it's not clear what the point of the life insurance would be. It's not replacing lost earning capacity.