No one ever plans to have a catastrophic illness. Most people go through life assuming that conditions such as organ failure, HIV/AIDS, cancer or hypertension will happen to someone else - not to them or their loved ones. But if a chronic disease does strike, individuals are confronted with a wide range of issues, one of which is finances.
If you are seriously ill and concerned that you have insufficient funds to maintain your quality of life, consider the information presented here before you do anything drastic such as selling your home or your life insurance policy. Also, retain the counsel of a professional comprehensive advisor. This individual should be someone who is not working on commission and with whom you have no conflict of interest. The advisor should examine your situation to suggest the wisest course of action.
Understand Your Financial Situation - The most important thing you can do is to get a clear picture of your financial situation - from assets to liabilities to borrowing sources. Once you thoroughly understand your financial situation, review these tips.
Liquidate your cash - After reviewing your financial situation in detail, begin liquidating your cash reserves first. There is no tax cost to doing this, and there are no commissions involved.
Liquidate low earning assets - If you have assets that aren't earning a tremendous rate of return (money market funds, certificates of deposit, bonds or bond funds) consider selling them. You probably won't have any major tax penalties for selling because you aren't giving up a lot of return.
Sell stocks and mutual funds - Consider selling other assets that might be sold without incurring a heavy commission, such as stocks and mutual funds. Be aware that there will be tax implications with this move (if you've held stocks for a long time, for example, there could be a capital gain). However, when an individual is severely ill and not earning an income, the tax on the gains may not be significant.
Borrow on margin - In some instances, you might consider borrowing on margin or borrowing against specific stocks held at a brokerage firm. While this could be advantageous, be aware that if the stock price drops you could be forced to sell the stock in order to cover the margin at its low. For this reason, such borrowing should be handled with caution.
Treat retirement accounts carefully - Avoid the temptation to cash in all your retirement accounts. Not only do you risk taking out more money than you may really need, you'll also have to pay taxes on all withdrawals. While withdrawals necessitated by disability are not subject to tax penalties, they will still be subject to ordinary taxes. Borrowing against a 401(k) account is another option that incurs less taxes and no penalties, but it's best to avoid closing out a very large account in one fell swoop unless it's absolutely necessary.
Use home equity lines of credit - Home equity lines of credit are not only relatively inexpensive, but are often tax-deductible ways of borrowing. If, prior to your illness, you had a home equity line of credit established, you might want to draw on it. Unfortunately, setting up a new line might be difficult since banks insist that you have earnings, which may be difficult to prove during a chronic illness (unless your spouse has sufficient income to qualify.) As a result, this option is most viable prior to illness, although it may be available only under certain circumstances.
Utilize life insurance policies - Do this either by taking out a loan against your policy, or by using what are known as "living benefits" or "accelerated benefits," in which the insured can draw down on the value of the policy during a terminal illness. If living benefits exist in your policy, they should be carefully reviewed as a viable alternative. Those with policies that feature relatively low borrowing interest rates may wish to borrow on the cash value of their policy or take the cash value of the policy. However, cashing it in is not advisable because doing so will take away a policy that's probably worth more now than it has ever been.
Tap into family sources - For some individuals, borrowing needed cash from a family member - rather than cashing everything in - might make sense. While no one wants to be a burden to others, it might make more sense than liquidating everything you have. Many family members will be inclined to do not only what's right for you and for the family in the short-term, but may also understand the long-term benefits of providing a loan during a serious illness. However, this is highly dependent on individual family circumstances.
Evaluate reverse mortgages - Depending on the severity of your condition and the amount of time you have available, you might consider a reverse mortgage. With this vehicle, homeowners with a lack of income can borrow against the equity in their home. Use caution with reverse mortgages. They can incur substantial costs and the approval process is usually slow.
Seek financial support - Social Security: You may qualify for assistance through Social Security. There is Supplemental Security Income (SSI) which makes monthly payments to people with low incomes, few assets and who are disabled with little or no work history. There is also Social Security Disability Income (SSDI.) People qualify for this program by working and paying Social Security taxes. Even if you have worked, you need to apply for both SSI and SSDI since you will not receive benefits under SSDI until six months after you have been determined to be disabled, and you can have SSI in the interim. You may also apply for "Presumptive Disability" when applying for SSI. This allows Social Security to "assume" you are disabled and to approve benefits for six months while they are processing your application. Call Social Security at 800-772-1213 to set up an appointment to apply for both programs. If you are too ill to go to an appointment, a phone application can be arranged.
Other options - Many other agencies or programs exist to offer financial assistance or medication grants. Many of them are diagnosis specific, but others are more generic. For example, some programs specifically for assistance with immunosuppressants for transplant recipients are the National Organization for Rare Disorders (NORD), the Prograf Reimbursement Hotline and the Transplant Foundation. Cancer patients may be able to obtain assistance from organizations such as the American Cancer Society or the Leukemia Society of America. All states and the District of Columbia have AIDS drug assistance programs. Patients with any diagnosis may be able to apply to the patient assistance programs of the manufacturers of their medication. To get more specific information on resources or financial support in your area, contact a local social worker or nurse coordinator.
Last Resorts —
Use credit cards - Borrowing on credit cards can be considered an option, but interest rates on such loans are considerably higher than most other choices. Because of this, it's a choice that should be examined carefully.
Accept a viatical settlement - A viatical settlement is where you sell your life insurance policy to a third party for a fraction of the policy's
Take out life insurance loans - Recently, several companies have surfaced which lend money against the value of a life insurance policy. These are not insurance companies, and unlike viatical settlements, you're not signing over your entire policy, but you are paying interest on the loan. It's a relatively new alternative, and one that should be considered very carefully. While the stated interest rates on these loans are reasonable, the associated fees and charges can dramatically increase the cost of this type of borrowing to a level that is uncomfortably high.
One way to minimize the feelings of helplessness and stress caused by your chronic illness is to plan ahead. Examine your overall financial situation, understand what your needs will be - to the best of your ability - and make an orderly decision. Understand all of your options and the pluses and minuses of each. Again, seek independent advice through professional advisors, including but not limited to, accountants, fee-only comprehensive financial advisors or attorneys.
Disclaimer: The above information is designed to function as a brief financial primer for those suffering chronic, life-threatening illnesses. It is only intended to be a partial list of issues that you might consider when preparing your finances, and there may be other issues related to the topic. For this reason, consumers are advised to seek independent advice through their own professional advisors.