Estate and Financial Planning for those Living with Chronic Illness or Disability pt2

By Martin Shenkman, CPA, BMA, JD







  1. Life Insurance.
    1. Life insurance planning is not only
      about selling a life insurance policy. Someone diagnosed with a chronic
      illness may be able to purchase additional life insurance if needed, many
      will not.  But planning must also
      creatively address dealing with the existing insurance plan.
    2. Life insurance may be a significant
      asset.
    3. If client is in desperate situation
      protect them so that they are not taken advantage of.
    4. Whole life and universal policies
      may include cash value in death benefit, family gets face. If family
      needs access to funds and the pull some of the cash value as a
      withdrawal, beneficiaries may still receive the same death benefit. Say
      there is a policy with a large premium but a significant cash value.
      Evaluate whether that asset can be better used. If life expectancy is
      substantially impacted it may prove advantageous to sell the policy and
      use the resources in other manners.
    5. Another approach for some existing
      policies to evaluate is to let the insurance company apply dividends and
      cash value to pay premiums to minimize current cash outlay. If the policy
      only pays face value this strategy may be extremely beneficial since on
      death only the death benefit would be paid. Even in other circumstances
      it might pay to let the cash value be applied to cover premiums even if
      it adversely affects the death benefit, from a budgeting perspective it
      may prove advantageous.
    6. They may need the funds for medical
      expenses, assisting with daily living, and other costs and there are ways
      to tap into policies. Some policies have an accelerated death benefit.
      Some policies permit you access 70-90% of the face value of the policy
      prior to death.  This will reduce
      the face value of the policy.
    7. Group term life insurance (e.g., 2 x
      pay) may have a rider permitting access.
    8. Determine whether the policy has an
      accelerated death benefit. This might enable you to access 50-90% of the
      death benefit if you have a serious illness. There is generally no income
      tax cost to an accelerated death benefit.
    9. Viatical settlements are another
      option.  There are unscrupulous
      companies that take tremendous advantage of people in extreme situations
      and you should be cautious of this. Example, someone on life support and
      no longer eating, his wife was pressured into selling a $200,000 policy
      for $50,000.
    10. In some instances a policy can be
      sold if it is no longer needed.
    11. Investigate whether the life
      insurance policy as a waiver of premiums in the event of disability which
      may enable you to stop paying premiums and retain the policy in force.
      Don’t simply stop paying, you must have a decision from the company. If
      they don’t agree, pay the premium under protest. Also, the definitions of
      what constitutes disability to trigger the waiver may differ
      substantially by policy.
    12. Investigate whether there are
      conversion features.
  2. Disability
    Insurance    .
    1. Even if you have a health issue may
      be able to get a group policy with limited underwriting.
    2. Residual versus total disability
      should be considered.
    3.  Proving disability with an “invisible”
      chronic illness.
    4.  Relationship with other arrangements:
      business overhead insurance; employment agreement; etc.
    5. If paid pre-tax dollars for
      disability policy proceeds will be taxable. If pay with post tax dollars
      it will be income tax free.
    6. Issues arise in definitions and
      calculations with the various disability insurance companies.
    7. Some disability companies use
      aggressive tactics to dissuade policy holders from collecting. Having
      professional advisers involved from the inception of the claim may be
      necessary to properly protect your interests. If the insurance company
      has largely left the business by reinsuring or selling their book of
      business be especially careful.
    8. Code Section 105 and 106 sick pay
      plans. These can be funded with disability insurance.
  3. Long Term
    Care Insurance    .
    1. Those who are older and concerned
      about cost of or access to care may consider long term care. The issue is
      waiting too long and then discovering that health issues make the cost of
      coverage greater, or prevent you from obtaining coverage..
    2. Some policies have state tax
      benefits.
    3. Underwriting is more difficult than
      for life insurance.
    4. Soft issues, can you dress or feed
      yourself?
    5. Some insurance companies have had
      bad experiences with what they are being more careful.
    6. Evaluate the cash outflow of
      premiums and the cash inflow to benefits.


Some plans have a death benefit and if you face a
terminal illness, or chronic illness that will shorten your life expectancy
this may be very useful.