Key takeaway
Parents of special needs children in Canada often use life insurance to fund long‑term care, housing, and income support through a trust. Coverage amounts are usually higher and timelines longer than for typical families.
Why life insurance is critical for special needs planning
Government benefits and disability supports help, but they rarely cover everything. Life insurance ensures there is money for housing, therapy, medical costs, and quality‑of‑life extras over decades.
Because the time horizon is lifelong, many families favour permanent policies and higher coverage amounts than they might otherwise consider.
Using Henson trusts and other structures
In many provinces, a Henson trust (absolute discretionary trust) is used to hold life insurance proceeds for a person with a disability while preserving eligibility for certain government benefits.
A trustee manages the funds and makes distributions according to the trust deed, ensuring long‑term oversight of your child's financial well‑being.
How much coverage do special needs families need?
Estimate lifetime costs: housing, caregiving, therapies, and inflation. It is not uncommon for families to carry $1–3M or more in coverage depending on complexity.
Work with a planner experienced in disability and special needs to refine assumptions and coordinate with RDSP savings.
Coordinating with RDSPs and government benefits
The Registered Disability Savings Plan (RDSP) and provincial supports can significantly reduce the amount of private capital required, but they rarely remove the need for life insurance entirely.
Planning should consider how insurance, RDSP, and government programs interact to avoid unintended clawbacks.
Frequently asked questions
Should I name my special needs child directly as beneficiary?
Usually no. Direct inheritance can jeopardize benefits and leave funds unmanaged. Trust structures, including Henson trusts, are typically recommended instead.
Do I need a lawyer to set this up?
Yes. Special needs planning is complex and should involve a lawyer familiar with disability law in your province, along with an advisor who understands insurance and RDSP rules.
Can we use term life insurance instead of permanent?
Term can play a role, but permanent coverage is often preferred because your child's needs may last for their entire life. Many families use a combination of both.