The Financial Implications of a Chronic Illness
When you live with a chronic illness, you need to confront
both the day-to-day and long-term financial implications of that illness.
Talking openly about your health can be hard, but sharing your questions and
challenges with those who can help you is extremely important, because
recommendations can be better tailored to your needs. Every person with a
chronic illness has unique issues, but here's a look at some topics you might
need help with.
A budget is a useful tool for anyone, but it's especially
valuable when you have a chronic illness, because it will serve as a foundation
when planning for the future. Both your income and expenses may change if
you're unable to work or your medical costs rise, and you may need to account for unique
expenses related to your condition. Clearly
seeing your overall financial picture can help you feel more in control.
Keeping good records is also important. For example, you may
want to set up a system to help you track medical expenses and insurance
claims. You may also want to prepare a list of instructions for others, such as a trusted friend or relative, that
includes where to find important household and financial information in an emergency.
Another step you might want to take is simplifying your
finances. For example, if you have numerous financial accounts, you could consolidate them to make it easier and quicker for you or a trusted advisor
to manage. Setting up automatic bill payments or online banking can also help
you keep your budget on track and ensure that you pay all bills on time.
Reviewing your insurance coverage is essential. Read your
health insurance policy and make sure you understand your copayments,
deductibles, and the nuts and bolts of your coverage. In addition, find out if
you have any disability coverage, and what terms and conditions apply.
You might assume that you can't purchase additional life
insurance, but this isn't necessarily the case. It may depend on your
condition or the type of life insurance you're seeking. Some policies will not
require a medical exam or will offer guaranteed coverage. If you already have
life insurance, find out if your policy includes accelerated (living) benefits.
You'll also want to review beneficiary designations. If you're married,
make sure that your spouse has adequate insurance coverage, too.
Having a chronic illness can affect your investment
strategy. Your income, cash-flow requirements, and tolerance for risk may
change, and your investment plan may need to be adjusted to account for both
your short-term and long-term needs. You may need to keep more funds in a
liquid account now (for example, to help meet day-to-day living expenses or use for home modifications, if necessary), and you'll want to thoroughly
evaluate your long-term needs before making investment decisions. The course of
your illness may be unpredictable, so your investment plan should remain
flexible and be reviewed periodically.
You might think of estate planning only as something you do to
get your affairs in order in the event of death, but estate planning tools
can also help you manage your finances right now.
For example, a durable power of
attorney can help protect your property in the event you become unable to handle
financial matters. A durable power of attorney allows you to authorize someone
else to act on your behalf, so he or she can do things like pay everyday
expenses, collect benefits, watch over your investments, and file taxes.
A living trust (also known as a revocable or inter vivos
trust) is a separate legal entity you create to own property, such as your home
or investments. The trust is called a living trust because it's meant to
function while you're alive. You control the property in the trust and,
whenever you wish, can change the trust terms, transfer property in and out
of the trust, or end the trust altogether. You name a co-trustee such as a
financial institution or a loved one who can manage the assets if you're unable
to do so.
There are costs and ongoing expenses associated with the creation and maintenance of trusts.
You may want to have advance medical directives in
place to let others know what medical treatment you would want, or that allow
someone to make medical decisions for you, in the event you can't express your
wishes yourself. Depending on what's allowed by your state, these directives may include a
living will, a durable power of attorney for health care, and a Do Not
Review your plan regularly
As your health changes, your needs will change too. Make
sure to regularly review and update your financial plan.