Many disabled children and adults receive benefits from two government programs, Supplemental Security Income (SSI) for disabled individuals and Medicaid. No government or private life insurance company or product has been created specifically to save for and fund the future care of disabled children.

However, life insurance can play a critical role in securing your child's financial future. Term or permanent (cash value) life insurance can be used to fund a special needs trust, a legal arrangement that allows you to provide for your disabled child throughout his life (even after you die) without risking his eligibility for SSI or Medicaid.

To receive SSI and Medicaid, your child must have minimal income and assets, which means that you potentially jeopardize his eligibility for life insurance benefits every time you save a dime towards his future care. Because the funds in a special needs trust are managed by a trustee and legally do not belong to your child, they are not considered "countable" for SSI and Medicaid eligibility purposes. However, funds in the trust must supplement, rather than replace, government benefits. They must be used for expenses, like clothing and transportation, which are not covered by government programs. Once the trust is created, you can fund it using any asset you choose (e.g., cash, stocks, personal property, etc.), but many people choose to fund a special needs trust with life insurance.