Financial Planning When You Have 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 as you're putting together your financial plan.
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 if your medical costs rise, and you may have unique expenses related to your condition that you'll need to account for. Clearly seeing your overall financial picture can also 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 that includes where to find important household and financial information that a trusted friend or relative can access in an emergency.
Another step you might want to take is simplifying your finances. For example, if you have numerous financial accounts, you might want to 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 co-payments, 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 may 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 your beneficiary designations. If you're married, you'll want to 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 you meet day-to-day living expenses or to use for home modifications, if necessary) but 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 as something you do to get your affairs in order in the event of your death, but estate planning tools can also help you manage your finances right now.
For example, you may want to have a durable power of attorney to 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, you 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.
You may also want to have advanced 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 may include a living will, a durable power of attorney for health care, and a Do Not Resuscitate order.
Review your plan regularly
As your health changes, your needs will change too. Make sure to regularly review and update your financial plan.