We depend on our incomes to pay for life’s necessities and to engage in our lifestyles. American workers use our earning power throughout the course of our working years in order to save for the future, enjoy the world around us, and to cover household and educational expenses, just to name a few of the many things our incomes are expected to do for us. A critical illness can derail all that hard work, impacting our ability to earn an income and even threatening our entire financial futures.
In our last blog post, we introduced the concept of earning power and went over some of the costs associated with critical illnesses like heart diseases, cancer, and strokes. In this post, we will begin to discuss some of the ways that individuals can financially survive if faced with a serious life-threatening illness.
Funding Sources for Financial Survival
If you or a spouse were to be affected by a life-threatening illness, how long could you remain financially stable at current income levels? How will you pay your bills and household expenses if you are unable to work? What about long-term care – do you have enough money to pay for these expenses over the long haul?
The point here is financial survival; having enough money to pay for illness-related expenses for as long as is needed. There are several funding sources available to help one survive a financial crisis of this nature – most are related to insurance plans and government programs. Some of the funding sources include:
- Disability Income Insurance – this type of insurance is designed to cover all or a portion of income if you have lost the ability to work through sickness, disability, or injury. Most such plans only cover a portion of expenses, and as with any insurance plan, there are several factors that influence when benefits are paid, how much they cover, and how long financial assistance lasts. It is vital to understand what expenses are covered, how long coverage lasts, and what steps one must take to receive benefits before a person agrees to this type of insurance plan.
- Healthcare Insurance – health insurance is something that we take for granted until it is needed. Many employers offer healthcare insurance plans to their employees, and these insurance policies are designed to cover medical-related expenses such as doctor visits, treatments, and hospitalizations. Most plans will cover some or all of the direct costs associated with a critical illness, but there are limitations. First, most plans will only cover direct medical expenses and cannot help to pay for household expenses or other lifestyle expenses. Second, many plans require the payment of a deductible, which can range from a few hundred dollars to thousands of dollars in out-of-pocket costs. Specialist medical care and long-term care such as home healthcare, may not be covered at all, causing the sick person to have to scramble for other funding.
- Social Security Benefits – while Social Security benefits can help pay for certain expenses associated with a life-threatening illness, it is difficult to rely on this program for financial survival. First, these benefits only begin to be paid after the sixth full month of disability; if funds are needed before this timeframe, other assets must be brought in to cover expenses. An even larger pitfall is that Social Security rarely replaces one’s earning power; in fact, the average disability benefit was just over $1000 per month. Many employees earn salaries far exceeding this number, making these benefits an inadequate way to cover life’s expenses. Still, as a financial supplement in times of need, Social Security benefits do have their place.
- Savings and Investments – let’s face the facts: if you are faced with a serious illness that impacts your ability to earn a living, your savings and financial assets are probably not going to be enough to cover long-term care and household expenses. Americans, in general, do not have enough money set aside for emergencies, and critical illnesses often require highly-specialized (and very expensive) care to overcome. One serious illness, such as a stroke or heart attack, could conceivably wipe out one’s entire finances in just a few short weeks – finances you’ve spent your entire working life accumulating.
If, after reading about these potential funding sources, you feel as if your financial survival may be at stake, there is hope. One solution that may cover financial shortfalls and provide the funding needed for medical expenses, long-term care, and household expenses is critical illness insurance.
What is Critical Illness Insurance?
A popular solution for the issues surrounding financial survival from a life-threatening illness is Critical Illness Insurance. This is simply a specialized insurance policy that is designed to offer funding for payment of indirect expenses that arise as a result of a serious health issue. Critical illness insurance can help ease the burden on finances while providing extra peace of mind. No one wants to worry about finances when they are sick!
Each critical insurance policy is different, but most are designed to kick in if a serious illness is diagnosed (see policy details for specifics on what diseases/illnesses are covered and when funding is available). Typically, these insurance plans pay a lump sum, which the insured party can do with as he or she wishes – there are often few or no restrictions on what the money can be used for. So, for example, the insured person can use the funds to help pay for:
- Child care expenses
- Specialized treatments not covered by regular healthcare insurance
- Short-term home health care, if needed
- Monthly mortgage or rent payments
- Utility bills and household expenses
- Transportation costs
- Health insurance deductibles and co-pays
- Any modifications needed to one’s home or vehicle to accommodate illness care
Best of all, the lump sum payments do not count as income and are free of any tax implications. All premiums paid into a critical illness insurance plan are not considered tax-deductible.
Now that we know what critical illness insurance IS, it is also important to understand what it is NOT. In our next blog post, we’ll dive deeper into this specialized insurance plan and discuss some of the advantages and drawbacks of this illness funding solution.