What parents of specially abled children must know about insurance, taxes

New Delhi-based Vikas Arya, 48, learned it the hard way when he visited a bank to open an account for his 21-year-old daughter. It took him over two months and multiple visits to the bank to open an account that is still not operational.

"I applied to open a joint bank account for her and my wife. Even senior executives had no idea what process was to be followed," he says.

Arya, who has not received any welcome kit either, says bank officials are still figuring it out.

Bengaluru-based Sunil Kawariya's seven-year-old daughter was hospitalized a couple of years ago. Even though he had added her to his family floater policy when she was born, the insurer rejected the claim, saying it was a congenital disease not covered by the insurance.

"Autism is visible medically only when the child turns two or three years old. By nature, it could be by birth, but we had not hidden this information," says Kawariya.

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Self-declaration is no guarantee that the claim will be settled. Aishwarya Magesh, 42, did declare about his son's cerebral palsy condition while buying the policy. The claim was still rejected for the same reason of congenital disease. 

"It irked me how they accepted the policy proposal after the self-declaration and collected the premium but did not settle the claim. I now invest to create a healthcare fund for him," she says.

Moreover, expenses for a child with special needs are much higher than those for a normal person.

“I spend ₹3 lakh a year on his education (for special school). The inclusive school or Montessori insists on employing a shadow teacher. They don't pick up and drop off our child unless a shadow nanny is hired due to safety concerns. Otherwise, parents have to do it, which adds to our cost," says Bengaluru-based Sunita Singh, 34. “Therapies are very expensive, and costs are not regulated; every therapy centre is changing as they wish. I spend nearly ₹65,000 every month."

Financial planning

Challenges abound. The financial planning of a family with a specially abled child is different from a normal family. A normal working professional considers the retirement age of 60 years when creating a financial plan. Parents of children with special needs may not be in a position to work that long. Moreover, they need a much higher emergency corpus, which can last for at least nine to thirteen months, and a good amount in the healthcare fund.

"They have to plan for two generations: For themselves and their child. We suggest creating a separate financial plan for the child and adding these expenses in the master financial plan of the family," says Jitendra Solanki, a Delhi-based Sebi-registered investment advisor who specializes in financial planning for families with children with special needs.

The first step is to estimate expenses required to secure their own retirement and the child's lifetime care. If they are short of funds factoring in future income, they can put in efforts to arrange it and invest the monthly surplus astutely to fetch good returns. Insurance will play a key role here. 

"People make a mistake of adding the child in their normal medical policy. Insurance companies have designed a separate product for people with disabilities, as per IRDAI (Insurance Regulatory and Development Authority) mandate, which is a standard product covering 21 disabilities," says Solanki.

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For example, Niramaya' Health Insurance Scheme offers an annual coverage of ₹1 lakh to all families with specially abled children. "It is a government scheme that not only covers hospitalization but also regular expenses like therapies. However, the latter is covered only up to a certain amount, not the entire ₹1 lakh," says Solanki. 

The scheme has no income bar. All parents with a child with special needs are eligible for it.

When it comes to the life cover, the popular ₹1 cover term insurance will not suffice. "We did some calculations for an 18-year-old child whose yearly expenses would cost ₹6 lakh to parents. We suggested to them a term cover of 2.5 crore," says Solanki.

The checklist

A "person with disability" is defined as an individual who has been certified by a government-approved medical authority to have a disability of not less than 40%, as per the Persons with Disabilities (Equal Opportunities, Protection of Rights, and Full Participation) Act of 1995. Every person with disability should get a UDID (Unique Disability Identity) card. 

"The UDID has succeeded the disability certificate. Launched by the government with the objective of creating a database for persons with disabilities across India, it can be issued by notified hospitals in the home district as well as the hospital where the person with disability is taking medical treatment," says Rajat Dutta, founder and initiator at Inheritance Needs Services Pvt. Ltd.

Another important task is to get the legal guardianship certificate when the child turns 18 (if medically unfit to make independent decisions). Solanki says parents like Vikas Arya should consider opening an individual bank account for their specially abled adult children, where one of the parents can be the legal guardian to conduct operations on their behalf. "Parents are natural legal guardians for minors. The legal guardianship certificate ensures they continue being so even after the child turns 18," Solanki says.

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One should accord legal guardianship to a trusted person in will and trust to ensure the child is cared for in their absence. Consider power of attorney too."The parents, while they are alive, gradually introduce the legal guardian to not only the child but also the stakeholders like banks, financial institutions, etc. This enables a smooth transition from parents to legal guardians," Dutta says.

Next comes availing tax benefits. Section 80DD of the Income Tax Act offers a deduction of ₹75,000 ( ₹1.25 lakh if the disability is more than 80%) to resident individual taxpayers and resident HUFs (Hindu Undivided Families) for expenses incurred on the support and maintenance of their dependents. This includes insurance premiums as well. Dependent of an individual taxpayer means spouse, children, parents, brothers and sisters of the taxpayer and a member of the HUF in case of an HUF.

Section 80U of the Income Tax Act directly offers the same tax deduction to the specially abled person, being a resident individual. “If parents have already claimed it under 80DD, their offspring cannot do it under section 80U," says Chintak Shah, vice president, Anand Rathi Wealth Ltd.

There is another tax benefit that not many people are aware of. "For normal families, the income of a minor child is clubbed with the parent's income when filing taxes. However, the clubbing provisions do not apply to parents with specially abled children. It makes sense to make some investments in the child's name to reduce the family's overall tax liability," says Shah (see the graphic).