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Special Needs Insurance: More Stability for a Growing Family's Budget
Insights
This study proposes special needs insurance to provide parents up to $100,000 for children with conditions like autism or Down syndrome. The analysis suggests a viable premium for insurers, offering financial relief to families.
Area of Science:
- Actuarial science
- Public health
- Insurance product development
Background:
- Raising a child with special needs incurs significant costs beyond typical child-rearing expenses.
- These costs include uncovered direct medical expenses and indirect costs like parental loss of earnings.
- Special needs can range from physical impairments to cognitive conditions such as autism and Down syndrome.
Purpose of the Study:
- To propose a novel insurance product, "special needs insurance," designed to financially support parents of children with special needs.
- To determine the feasibility and potential profitability of such an insurance product for insurers.
- To offer a financial relief mechanism for families facing the substantial costs associated with raising a special needs child.
Main Methods:
- Medico-actuarial analysis of various physical and cognitive disabilities present at birth or in early childhood.
- Utilizing medical literature to describe conditions and epidemiological studies to calculate prevalence rates.
- Developing a premium structure that accounts for factors like multiple births and condition-specific risks.
Main Results:
- Physical impairments are deemed well-understood for fixed payouts, while cognitive impairments like autism necessitate a flexible "cognitive fund."
- An average single premium of $4,600 was calculated as sufficient for profitable benefit payouts.
- The proposed insurance model demonstrates financial viability for insurers.
Conclusions:
- The proposed special needs insurance product offers a potential solution to alleviate the financial burden on families with special needs children.
- While product success isn't guaranteed, the analysis provides insurers with a justifiable basis for underwriting this new risk.
- This insurance innovation aims to provide significant lump-sum payouts to aid families in managing extraordinary child-rearing expenses.
Objective.—:
To propose an insurance product called special needs insurance. The insurance will pay parents a lump sum up to $100,000 if they have a child that is born with or develops a special needs condition such as Down syndrome, cerebral palsy or autism.
Background.—:
Raising a child is expensive; raising a child with a special need can be hundreds of thousands of dollars more expensive. These additional costs include direct costs that are not covered by health insurance and indirect costs such as the loss of earnings when a working parent must tend to a special needs child.
Method.—:
We analyze a gamut of birth and early childhood disabilities, both physical and cognitive, from the medico-actuarial perspective. We describe each condition using relevant medical literature and calculate prevalence rates from epidemiological studies (appendix A1-A15). After accounting for multiple births, we develop a final premium.
Results.—:
We find that physical impairments are sufficiently well understood to guarantee a fixed payout, whereas cognitive impairments such as autism are less understood, and so for these we propose a cognitive fund that does not guarantee a fixed payout. We find that an average single premium of $4,600 allows the insurer to profitably pay out the proposed benefits.
Conclusions.—:
Raising a special needs child can put a significant strain on the affected family's budget. We propose an insurance product that provides relief through a large lump sum payout. Although no new insurance product can be guaranteed success, our analysis of this product gives an interested insurer reasonable justification to take on this new risk.
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