How to Provide Financial Security for a Child with Special Needs

Written by Vidya Kumar

October 5, 2016

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Executive Summary- It is emotionally and physically challenging to take care of a child with special needs. One should not forget about financial security of the child. Saving more, having a diversified investment portfolio and creation of a trust helps. Take advantage of tax breaks and schemes for the disabled.

Generally, children with special needs require more attention on a daily basis and more medical assistance. Their health care needs and emotional needs are more specialized. The emotional demand on the parents is high. The parents are busy managing various things and might miss out on planning finances for the long run.
​Here are some guidelines on planning finances for parents of children with special needs –

1) Higher Savings and Investments – A differently abled person may have restrictions which affect his earning capability. The parents should save as much as possible so that there is a sizeable emergency fund and more money can be invested which can give more returns. The emergency fund should consider the health status of the child in future as well. If there are chances that it might deteriorate, then the savings must be appropriately higher. Investments should be diversified and such that optimum returns are delivered. At the same time, the risk should be managed well.

“Build a secure financial future for your child with special needs using smart investments, trust, tax breaks and insurance”

2) Trust – Financial matters are very important for the disabled child. You should create a trust which can be used for the child. Initially you will be the trustee with specific family members/friends as co-trustees. In this way, the funds will not be misused and you can assess ability of the co-trustee and understand if this person is right to be the caregiver in case you are not around.
3) Insurance – It is important to insure the parents’ lives or the primary caregiver’s life and opt for a medical cover for the child.
The caregiver/parents can purchase a term policy with the child nominated to receive the proceeds. A life insurance cover with monthly payouts or endowment policy can be purchased so that the money received can be allotted to the child/ trust. There are some insurance schemes that covers medical expenses for disabled people. As a parent, you should take a medical cover for your child. Some insurance policies are Nirmaya and Swavlamban (New India Assurance). Please check the terms and conditions before buying the policy.
4) Taxation – Tax breaks are given to persons who support disabled persons.
As per Section 80DD of the Income Tax –

  1. If you have a family member with 40% to 79% of disability, you get additional Rs. 75,000 deduction.
  2. If you have a family member with greater than 80% of disability, you get additional Rs. 1,25,000 deduction.

Under Section 80D, you can claim a deduction of Rs. 15,000 for buying health insurance for dependents. This can be claimed by a parent buying a health insurance policy for the differently abled child.
The relevant documentation like medical certificate etc. should be in place to claim the deduction.
5) Schemes and Subsidies – There are some entitlements available for persons with disabilities. You should find out the one suited for you and utilize it. Here are some of them –

  1. Scheme of National Scholarship for Persons with Disabilities – Scholarship is given for some professional and technical courses that have a duration more than a year. If the student has autism / cerebral palsy / mental retardation / multiple disabilities, the scholarship is provided from Class 9.
  2. Rajiv Gandhi Fellowship scheme – This scheme provides scholarships to persons with disabilities to pursue higher education such as M Phil / Ph D provided base requirements are fulfilled.

6) Detailed Memorandum – The primary caregiver should list out the following details of physical and emotional care to be given to the disabled child so that if there is another person taking care, he/she knows what to expect –

  1. Medical Details – Details of doctor and doctor visits, therapy sessions, medicines and the dosage. The medical history and current medical conditions should be recorded. Allergies should be specified.
  2. Habits – Diet plan, Likes/Dislikes, daily routine, strengths/weaknesses and wishes.
  3. Contact Details – Contact information of doctors, lawyers, NGOs, persons whom your child shares a bond and lawyers.

Caring for a differently abled child is a gruelling challenge- physically, emotionally and financially. The child needs financial security for a long time. You should remember to plan the finances for the child and the finances of you and other family members separately. Hopefully the above guidelines will help to secure a better financial future for the child.

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