How to Plan Financially for a Chronic Illness

Today I was introduced to an elderly widow who is on borrowed time. She is in great health for her age. Her mental faculties are excellent. But I felt horrible listening to her story. You'll understand in a few minutes why I'm saying borrowed time.

Her late husband spent the last decade plus of his life with a progressive disease. Whatever he accumulated, it was spent on the around-the-clock care. Some money went into the modification of their home. But almost everything was used up on home health aids. In his remaining days, he was in palliative care in a nursing home (he was rejected from Medicare paid hospice). This was close to $500/day. (For more, see: How to Manage Chronic Illness Expenses.)

Well, not everything was used up. She still has a home. Big deal. The property taxes are incredibly high, and she may have to sell it before the house eats up even more income. She has Social Security. But it's only one benefit, not the two when her husband was alive. In her own words, she lamented about not having a pension, IRA or annuity.

Planning Ahead

I wonder how much different her life would be if she and her late husband, with or without the help of a financial advisor, asked a simple question: What happens if one or both of us will get sick?

What if they thought about a long-term care plan? While arguably helpful, long-term plans don't always have to include traditional long-term care insurance. The home could have been sold and the equity used. Maybe a reverse mortgage so other assets could be preserved. Instead she's asset "rich" and cash and income poor.

What if she still had life insurance on him? We are told by some "experts" you only need term insurance to protect against an early death. What about protecting the healthy spouse from an illness later in life? Depending on how the policy was structured, the cash value could have been used. Or, the death benefit of the policy would made her whole after laying out all that money on her husband's care. If it was a newer policy, there may have been a true long-term care rider or at least a chronic illness rider. Please note that long-term care riders and chronic illness riders are not the same. Without getting lost in the weeds, there are differences per the IRS and how they pay out benefits.

What if there was an annuity that continued to pay income after her husband passed away? It might be a huge help now with her monthly cash flow, even though it wouldn't replace all the money she laid out. But again, it would be akin to a pension. When there are no more paychecks from wages and you are down a Social Security payment because one spouse died, a paycheck from an annuity on top of the survivor's Social Security may be a huge help.

I would love to meet her financial advisor (or former one). I bet he or she had awesome investment products to offer over the years. They probably beat the S&P 500. Yes, this was my attempt at sarcasm.

To quote my friend Tracey Lawrence of Grand Family Planning, LLC. What happens when you get sick? (For more, see: Choosing Long-Term Care Insurance: Which Is the Best?)