Full Medical Coverage: How to Plan for the Worst

Life insurance has become a standard purchase for people looking to protect their loved ones in the event of an untimely death. But experts say planning for a severe accident is just as important.

“If something happens that doesn’t kill you, you’ll have even bigger expenses than if you died,” says Jim Kohles, chairman of the board at RINA Accountancy Corp. “It’s something people don’t consider or they assume is covered [by life insurance].”

There are many ways for someone to become incapacitated: It could be the onset of dementia that leaves someone unable to perform personal care or an accident that leaves a person brain dead. According to the World Health Organization, dementia has become the No.1 cause of disability around the world, and a stroke stands at No. 2.

Being incapacitated means a person cannot make health and financial decisions for themselves or their loved ones.

“It’s actually more difficult to plan for then death,” says Haitham Ashoo, CEO of Pillar Wealth Management. “For a death, you can go buy life insurance and if you pass away the money goes to whomever you designated.”

According to financial experts, people should have a plan in place to cover expenses and provide financial support if they become hurt or ill and can no longer work or take care of themselves.

While some life insurance plans will provide some short-term assistance if a policy holder becomes incapacitated, most won’t pay the mortgage or cover the monthly food bill indefinitely.  Consumers have the option of buying long-term care insurance, but if they are older, coverage can become quite costly.

One way to make sure you are protected from an incapacity is to purchase disability insurance. While the premiums will vary based on your age, health, income and potentially even your profession,  disability insurance provides a monthly pay to help make ends meet if something were to happen.

There are tax implications with this type of insurance, according to Kohles. For example, if a worker purchase disability through a job, the premiums can be written off. Keep in mind that writing it off would mean any claims paid would be taxable, he adds. If the premiums are paid with post-tax dollars, the benefits aren’t taxable.

In addition to considering a disability insurance policy, financial experts say it’s imperative that people have their legal documents in order that clearly state their wishes if they became incapacitated. Those documents include a durable power of attorney for financial decisions, and an advanced health care directive for any medical decisions.

The  documents should name the so-called agents that will be responsible for implementing any financial and medical decisions. Make sure to trustworthy individuals, and be sure to update the names and documents regularly to make sure they still match life circumstances.

“People need to remember they’re going to be vulnerable – you don’t want to pick someone if you have a quiver of doubt about them,” says John Hartog, a partner at Hartog & Baer Trust and Estate Law. He suggests naming on person as an agent and a second person to whom the agent must report as a safeguard. “Just the idea that you have to report keeps people honest,” he says.

Married couples need to both be involved and stay current on financial issues, advises Ashoo. After all, if the person who handles everything were to become incapacitated the other spouse won’t know where the money is, how it’s been invested and how to make any decisions.

“The non-involved person needs to understand how the finances are arranged and planned, and he or she needs to be very comfortable with the family’s advisors,” says Ashoo. “If something were to happen [to the spouse in the know] it would make a situation that is bad into a fire drill.”