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. Career Education & Resources

    The Top RIA Deals of 2015

    It was a big year for change within the RIA industry. Here are 2015's biggest mergers, acquisitions and buyouts.
  2. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  3. Products and Investments

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  4. Professionals

    A Day In The Life Of A Public Accountant

    Here's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
  5. Professionals

    A Day in the Life of a Public Accountant

    There’s no typical day in the life of a public accountant, but one accountant’s experience may shed some light on what the career entails.
  6. Saving and Spending

    A Key Tip for Making Your Nest Egg Last Longer

    Retirees who don't want to deplete their nest eggs during a bear market should make sure to do the following.
  7. Mutual Funds & ETFs

    Fidelity Target Risk Funds Overview

    Get a brief overview of Fidelity's seven target risk funds, with a description of each fund's asset allocation and expense ratio.
  8. Investing News

    Is it the Right Time to Raise Interest Rates?

    Warning signs have started to emerge that point to a potentially dismal 2016 for the U.S. economy.
  9. Markets

    Four Big Risks of Algorithmic High-Frequency Trading

    Algorithmic HFT has a number of risks, and it also can amplify systemic risk because of its propensity to intensify market volatility.
  10. Mutual Funds & ETFs

    The Top 3 Invesco Funds for Retirement Diversification in 2016

    Explore analyses of the top three Invesco mutual funds for retirement diversification in 2016, and learn about the characteristics of these target-date funds.
RELATED TERMS
  1. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  2. Equity Risk Premium

    The excess return that investing in the stock market provides ...
  3. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  4. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  5. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  6. Gross Exposure

    The absolute level of a fund's investments.
RELATED FAQS
  1. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Full Answer >>
  2. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  3. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  4. Why are mutual funds subject to market risk?

    Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict ... Read Full Answer >>
  5. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  6. Can your car insurance company check your driving record?

    While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center