It’s something we all dread: a heart attack, a stroke, or a cancer diagnosis. Suddenly, our whole world is turned upside down. And at such times, it can be a relief and a comfort to know we are financially prepared for this critical illness.
Today’s 65-year-olds face a 70% chance of needing long-term care from a critical illness, according to U.S. Health and Human Services. None of us wants to think about getting sick, but it’s best to be prepared.
Generally, there are four ways to prepare yourself and your family for a critical illness before it happens: health insurance, supplemental insurance, medical directives, and making sure your personal savings are well-stocked.
Let’s dig into each option below.
Health Insurance: Make Sure You’re Covered
First, ensure you have as comprehensive a health insurance policy as possible.
If you work at a large company, it’s worth your while to reach out to your benefits department and inquire about the health insurance options available to you post-retirement.
Many retirees have the option to carry their employer-covered health insurance plan into retirement. Some employer plans offer group health insurance for early retirees, and your company may even cover part of your premiums after you’ve retired.
If you aren’t able to keep your employer plan after retirement, you have the option to sign up for a plan under the Health Insurance Marketplace under the Affordable Care Act (ACA) or buy a private health insurance plan directly from an insurance company.
Keep in mind that you’ll also be eligible for Medicare coverage at age 65. However, Medicare generally doesn’t cover long-term care. If you have little to no savings or assets, you may qualify for Medicaid’s help getting long-term care, but that should be a last resort.
Supplemental Insurance to Fill in the Gaps
Once you’ve made a plan for your health insurance coverage going into retirement and beyond, make sure you’re covered in the event of a critical illness that comes with more treatment costs than your insurance will cover.
You generally have three options for supplemental coverage, which you can mix and match to fit your needs:
- Long-term care insurance (LTC) covers costs of long-term treatment, like if you have a condition that incapacitates you for longer than the initial treatment takes. It makes regular payments to cover medical costs and to help you get the care you need to perform the functions of daily living. LTC insurance can be costly, so do your research before buying. A hybrid policy that is combined with life insurance may be an option.
- Critical illness insurance provides a lump-sum payment when you are diagnosed with a critical condition covered by the policy. These policies have no restrictions on how you use the money, and you often have the option to include your dependents in your policy as well.
- Long-term disability insurance (also known as income protection insurance) covers lost wages if you become disabled or suffer a long-term illness. You must be employed and usually younger than 65 to qualify for this benefit.
Let Doctors Know the Kind of Care You Want
Preparing for a critical illness means deciding on the kind of end-of-life decisions you would want made on your behalf if you couldn’t make them yourself.
Traditionally, people have used advance directives to identify the person who can make decisions for them and the kind of treatments they would want.
A relatively new approach is POLST, or Physician Orders for Life-Sustaining Treatment. It is used as a complement to the advance directive and is completed if you are diagnosed with an advanced illness or frailty.
This chart details some important differences to help you understand the role each can play in your medical care:
Save as Much as You Can
Finally, do your best while you are working to set aside as much money as possible in preparation for a medical emergency. The treatment and recovery from a serious, long-term illness can require hefty financial support.
It’s always wise to have an emergency fund stocked with at least three to six months’ worth of expenses. Even if you have critical illness coverage, you may experience delays before you start receiving your cash benefits. And bills don’t stop coming, even in the event of a medical emergency.
If you do experience a medical emergency and you haven’t had the chance to save, a short-term option might be to have a secured line of credit drawn on your home—if you can pay the loan back quickly. These lines of credit often have lower interest rates than other forms of loans.
Make a Critical Illness Plan—You’ll Thank Yourself Later
While no one wants to picture themselves falling victim to a critical illness that leaves them with a long road to recovery, statistics show that most of us will suffer from a long-term medical condition at one point or another. That’s why our Vancouver- and San Mateo-based financial planning firm helps clients plan for potential medical care as part of their comprehensive financial planning.
The wisest course of action is to be as prepared as you can for the financial hit of long-term incapacitation.
Make sure you’ve gotten your ducks in a row by making a plan for comprehensive health insurance, a supplemental insurance policy, and a solid savings strategy. If you are unsure how your preparation works with your overall financial situation, consider talking with a fiduciary financial advisor.
After all, a critical illness is difficult enough without the added burden of extreme financial strain for yourself or your loved ones.
Schedule a complimentary meeting with a fee-only financial advisor to discuss your situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice