Chronic diseases are generally incurable illnesses or conditions, such as heart disease, asthma, cancer and diabetes, which are among the most common and costly of all health problems.1
As the baby boomer generation continues to age, there likely will be more Americans dealing with chronic illnesses in the coming years. A couple of simple statistics highlight the gravity of chronic illnesses in the U.S.:
— As of 2012, nearly half of all American adults — 117 million people — had one or more chronic health conditions; one out of four adults had two or more chronic health conditions.2
— In 2010, seven of the top 10 causes of death were chronic diseases. Two of these chronic diseases — heart disease and cancer — collectively accounted for nearly 48 percent of all deaths.3
— In 2010, 86 percent of all health care spending was for people with one or more chronic medical conditions.4
Whether you have just been diagnosed or are currently dealing with a chronic illness, here are a few important issues to consider:
1. Tell Your Advisors
Discuss your illness with your attorney, accountant, financial advisor and other professionals who are giving advice or making recommendations based on your health and life expectancy.
While it can be uncomfortable talking about your illness and symptoms, there a few important reasons why you should: first, disclosing your illness allows your advisors to consider whether it impacts any of the planning decisions they are helping you make. Beyond your financial needs, your advisors can also make accommodations to help you feel more comfortable at meetings, such as shortening the length of the meeting, providing meeting notes or asking another family member to attend on your behalf.
2. Make Changes to Your Investment Portfolio and Cash Flow
Some chronic illnesses lead to cognitive impairment or decreased life expectancy; others do not. To the extent your illness will affect your life expectancy and/or increase your health care costs, consider whether you should adjust your portfolio or cash flow to account for current or future health care needs. For example, if your illness could shorten your lifespan, or you require additional cash flow for health care treatments, your financial advisor can review and adjust your portfolio accordingly.
3. Organize Your Financial Records
To the extent your illness will affect your physical or cognitive ability to manage your finances, you may consider reorganizing your tax and financial records to better simplify your life. For example, you can consolidate your bank and investment accounts and automate bill payment online to help streamline the process.
You should also check who has access to your safe-deposit boxes and determine whether a family member should receive duplicate account statements to help you better manage your accounts.
4. Research Tax Incentives for Home Modifications
You can receive an income tax deduction for home improvements you make for medical purposes, such as installing wheelchair ramps, widening doorways, modifying cabinets and more. Note that you cannot deduct these expenditures if they increase the value of your home. To be eligible for the deductions, an appraisal is required both before and after the improvements are made; to the extent the value of your home increases, these expenses are not deductible.
5. Reassess Your Life Insurance Coverage
A key factor in determining whether to maintain life insurance is how your illness will affect your projected life expectancy. If you have term insurance, which offers protection for a specific number of years, then it’s important to ensure you understand the terms of the policy, if any, so it can be converted to a whole life policy.
If you have a whole life policy and need additional cash for your care, be sure to understand your ability to borrow cash from the policy. Instead of borrowing from the policy or cashing it in, you may want to consider selling the whole life policy to a third party, as the value at sale may be considerably more than the cash value of the policy.
6. Consider Long-Term Care Insurance
Depending on your illness, you might still be able to obtain long-term care insurance. For existing policies, make sure you have a full understanding of the coverage provided by the policy, including the elimination period before the benefits begin, the benefit amount and the term for which benefits will be paid.
7. Understand Any Disability Insurance Proceeds
If you have disability insurance — either as an employment benefit or as an individual policy — it’s crucial to understand how the policy defines disability, and how much it will pay. You also need to understand how the policy proceeds will be taxed. If the policy is an employment benefit, and you do not pay income tax on premiums paid on your behalf, then the entire disability benefit will be taxable to you as ordinary income. If, however, you have either paid for the premiums directly or have been taxed on the premiums as an employment benefit, then the entire disability benefit is tax-free.
8. Don’t Forget Estate Planning
Everyone can benefit from having an estate plan, but if you have a chronic illness, it must be a top planning priority. Having a chronic illness emphasizes a few, key planning issues: first, it is critical that you have financial and health care powers of attorney in place, since it is more likely that you will become incapacitated during your lifetime, due to your illness. As part of completing a health care power of attorney, you should also consider signing a Health Insurance Portability and Accountability Act (HIPAA) release authorizing the disclosure of your medical records to your health care agents.
Second, if your illness will likely affect your cognitive abilities, it’s imperative that you have a thoughtful discussion with your health care agents and financial and legal advisors about how important decisions will be determined. Having a plan beforehand can help reduce family tension and infighting when your competency may be in doubt.
9. Take Steps to Safeguard Your Business
If you are a business owner dealing with a chronic illness, there are additional considerations you should keep in mind. If your illness will impact your ability to conduct the business as desired, then you must consider how the business will be transitioned to family members or sold to others. If there are multiple owners in the business, you’ll need to review whether your buy-sell agreement triggers a sale of your interest should you face disability. If so, then you’ll have another question to consider: are the symptoms of your illness sufficient enough to meet the definition of disability under the agreement? If so, does the determined value of your interest in the business still make sense?
10. Arrange Care for Your Caregivers
Those who are providing care to someone with a chronic illness can often suffer health issues themselves, both physical and mental. In particular, if you have a child or other family members who are helping care for you, don’t overlook their needs. Remember to make arrangements for their time off by obtaining temporary help as needed.
While it may be uncomfortable to share the news of your chronic illness and its symptoms with your family and advisors, it is important to address the impact it can have on your finances so planning can be completed properly.