If You’re Seriously Ill…

All too often, it’s the onset of a serious or terminal illness which motivates people enough to talk about their future money matters for the first time. And, of course, circumstances such as those only serve to cloud and complicate the subject of finances. The strategies which are right and prudent for a healthy individual can be quite different from those that would make sense for a person in very poor health. If you or a loved one is facing a serious illness, let’s look at some points which might be worth considering.

For starters, make sure that your estate plan is up-to-date. This advice is good for people of any age, but particularly for the elderly or infirmed. Your plan should not only cover your will, but your medical directives as well. A living will let’s your doctor know how you wish to be treated if you can no longer live with life-support equipment. A health care proxy allows another individual to make health-related decisions for you if you no longer can due to incapacitation. You should also have a durable power of attorney, which gives someone else the right to handle your financial matters on your behalf.

If you know that you’re likely to be hospitalized for a lengthy period of time, it may be smart to purchase a hospital indemnity insurance policy. Those are the policies which pay $100 or $200 per day for each day that you’re in the hospital; they usually pay more if you’re in intensive care. It’s best not to wait until you have to enter the hospital, since the policy may have a pre-existing condition exclusion period of three- to six months.

You may also want to look at credit life insurance. This insurance pays off the particular debt that’s covered should you die, and is generally an unnecessary added expense. However, under conditions of terminal illness, it’s a good idea to buy as much of it as you can if you have a lot of credit card debt. No physical exam is necessary, but like hospital indemnity it usually has a six-month pre-existing condition exclusion; only buy this coverage if you’re sure that you’ll live at least that long.

Once you become very ill, the natural impulse may be to discontinue making contributions into your 401(k) and other retirement accounts, due to the very real possibility that you may not live to retirement. Don’t do it. If your employer matches your contributions, and you leave work due to an illness or disability, you’re likely to become one-hundred percent vested in your employer’s portion of the fund. That’s essentially free money that’s given to you. And if you do leave the workforce, it might be best to resist the urge to withdraw all of your retirement immediately. Although you wouldn’t incur the ten-percent penalty for withdrawing prematurely due to disability, that distribution would be taxed as ordinary income at your current tax rate. Your tax rate could very well be lower if you waited until next year; in other words, you’ll be able to keep more of your retirement savings at a time when you truly need it.