Unanticipated death from terminal illness or accident is difficult to plan
through. It's not the same as Medicaid or cash flow planning for the elderly.
Many financial planning principles are reversed. Princess Diana's accident
and Mother Teresa's recent death got me thinking. If you or I had extended
family members who'd been diagnosed with AIDS, brain cancer, terminal
kidney disease or other catastrophe, here are some things we would need
to consider. Let's assume an anticipated shortened life-span of less than
4 years and a total cost of health care of $85,000 to $1,000,000.
Health Insurance: Review long term care provisions and
services available with the doctor. There are limits to all health coverage.
Will you be exceeding the limit? When? How will you take care of the co-pay
portion of the hospital and doctor's bills? As long as the terminally
ill person is working, there are open enrollment periods from companies
that ask no underwriting questions and who ignore pre-existing conditions
if transferring in or from another plan. I would see what could be done
to have the best coverage. I wouldn't worry about price, but I would look
for flexibility for the dying person.
Disability Insurance: The terminally ill person should
seek disability leave with a care to the definitions in the policy. Insurance
companies do not like to pay disability benefits. If all of the stipulations
of the contract are not met, there could be a court battle with the company
to receive the benefits. What are the elimination periods available in
disability policies? I'd check the benefit periods, too. Does the insurance
company's doctor have to be involved in treatment and in medical records
in order to continue to have claims reimbursed? Are there pre-existing
conditions or exclusions that apply? Does a waiver exist to avoid the
continued payment of disability premiums? Medicare coverage kicks in after
29 continuous months of disability. Can we get there on existing assets
and coverages?
Life Insurance: I'd look for a waiver of premium rider
on life insurance. Is there a contestable period during which the company
can deny claims? Can the policy be converted to a permanent policy at
a higher annual premium with better payouts or better contract provisions?
Some term policies have guaranteed issue provisions that allow the purchase
of additional insurance without underwriting during certain periods. We
might consider a private arrangement within the family for the stricken
person to receive life insurance death benefit cash now in order to afford
upgraded medical care. The family member whose cash is used would then
receive the death benefit to pay back the loan. Viatical arrangements
can also be made with public companies, but the expense is high.
Cash Flow and Investment Planning: I'd maximize credit
relationships. Depending on the situation, I'd refinance a house to increase
cash reserves. I would not prepay mortgages or student loans. I wouldn't
pay late either. Dependable liquidity is primary. Long-term investments
should probably be liquidated, but may be held, if tax basis is very low,
by using margin loans to be satisfied after death.
Retirement Plans: I'd check plan documents to see if
the 10% penalty for early withdrawal and vesting requirements are waived
for the terminally ill with proper documentation. I'd use an IRA rollover
if appropriate, perhaps to a Roth IRA, to postpone taxes until after death
on the new four-year tax payment rule.
These are ticklish issues that neither Princess Diana's family nor Mother
Teresa's Order had to face. We just might.
