Special Circumstances - Terminal illness



For someone diagnosed with a terminal illness, planning should begin immediately. Relevant issues include extent of health insurance coverage, disability coverage and estate planning.


Health insurance
A central question is what will be the cost of living with the illness be and what costs will be covered by health insurance. Issues to review:

  • Extent of coverage.
  • What are the lifetime maximums and are they likely to be reached?
  • Are experimental treatments covered under the policy?
  • Disability insurance - Is the individual covered under an individual or group policy or is he or she eligible for Social Security disability benefits?

Life insurance
An existing life insurance policy may be available to help cover costs associated with a terminal illness.
  • Cash value - For a policy in place for a number of years, there may be a substantial cash value that the policyholder can tap by either withdrawing it and giving up the right to a death benefit or borrowing against it.
  • Accelerated death benefit - Many life insurance contracts contain a provision that allows an insured to collect on a portion or all of a benefit amount in case of terminal illness, dread disease or other specified events. Reduces cash value and underlying death benefit of the policy.
  • Accelerated benefits received by a terminally ill or chronically ill person are excluded from gross income for tax purposes.
    • Terminally ill - A person with an illness or condition expected to result in death within 24 months.
    • Chronically ill - A person unable to perform at least two of six activities of daily living: eating, toileting, transferring, bathing, dressing and continence. Also, a person requiring substantial supervision due to severe cognitive impact.
  • Viatical settlement - Sell the policy to a third party that pays a percentage of the policy's normal death benefit. An insured meeting the definition of terminally ill can exclude viatical settlement proceeds from gross income.

Estate planning issues
  • Review and update key documents:
    • Living will - Allows person to direct how medical treatment should be rendered or withheld in terminal situations after the person becomes incompetent to make his or her own decisions. Also known as an advance medical directive.
    • Health care proxy - Names another person to make medical decisions in the event an individual is not able to do so. Also known as health care power of attorney.
    • Power of attorney - In the event of incapacity, allows another person to act on individual's behalf in legal, financial, business and other matters. Powers of attorney can be general or limited.
    • Will - If not in place, a will should be drafted to ensure individual's wishes are carried out. Should address appointment of guardians, executors and trustees.
    • Retirement plan and life insurance beneficiaries - Review to be sure they are up to date and reflect current wishes.
Non-traditional families


Related Articles
  1. Options & Futures

    Critical Illness Insurance: Get Paid If You Get Sick

    This coverage will allow you to focus your attention on getting well, rather than getting by.
  2. Insurance

    Critical Illness Insurance: Do You Need It?

    Critical illness insurance could be the only thing protecting you from financial ruin if you're faced with a big health emergency.
  3. Professionals

    Policy Replacement and Viatical Settlements

    Policy Replacement and Viatical Settlements
  4. Insurance

    How to Protect Your Income No Matter What

    What does it mean to insure your income? Here are a variety of ways to do it and some insights into when it might make sense to invest in income insurance.
  5. Budgeting

    The Long Goodbye

    Proper planning will help ensure that your wishes are honored and your heirs are well cared for.
  6. Insurance

    A Closer Look At Accelerated Benefit Riders

    Accelerated benefit riders can allow policy holders to access the death benefit in their life insurance policy while they are still living if they meet certain conditions. Knowing what you get ...
  7. Personal Finance

    How Survivorship Life Insurance Works

    Should you buy a survivorship life insurance policy?
  8. Insurance

    Life Insurance With an Increasing Death Benefit

    Why buy a life insurance policy with an increasing rather than level death benefit
  9. Investing

    7 Issues to Consider When Determining Life Insurance Coverage

    Seven issues to consider when buying life insurance to ensure the coverage is tailored to meet your personal financial situation.
  10. Insurance

    Use Life Insurance to Help Those With a Disability

    Why and how to use permanent life insurance to help provide for a family member with a disability or special needs
RELATED TERMS
  1. Terminally Ill

    A person who is sick and is diagnosed with a disease that will ...
  2. Accelerated Benefits

    A clause in certain life insurance policies that enables the ...
  3. Acceleration Life Insurance

    A type of policy that pays a portion (typically 25\% or 50\%) ...
  4. Accelerated Death Benefit - ADB

    A benefit that can be attached to a life insurance policy that ...
  5. Catastrophic Illness Insurance

    A type of insurance that protects the insured, in the event of ...
  6. Viatication

    The selling of a life insurance policy by a terminally ill person, ...
RELATED FAQS
  1. What is the difference between the death benefit and cash value of an insurance policy?

    Understand the difference between the various components of a life insurance policy including the death benefit and a policy's ... Read Answer >>
  2. What are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  3. What is long-term care?

    Long-term care refers to a collection of services that are intended to meet the medical and non-medical needs of disabled ... Read Answer >>
  4. What is the difference between term and universal life insurance?

    Term life insurance is the most basic of insurance policies. It is nothing more than an insurance policy that provides protection ... Read Answer >>
  5. How are life insurance proceeds taxed?

  6. What is disability-income insurance?

    Disability-income insurance is insurance that provides financial benefits to a policyholder in the event of sickness or injury ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center