If I Got Sick and Can’t Work, How Will I Pay My Bills?

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Updated: April 2020 as part of a series about COVID-19 financial relief articles

Since the time I was little, I have known a number of people who got sick and couldn’t work anymore. Since this has come up with a few clients just recently, I thought I would write on this important topic.

The Two Time Periods of Planning

There are 2 main time periods for this type of planning. The first we call disability planning which would be for someone who is still working and bringing home a paycheck. Some call it “paycheck insurance” because your most valuable asset when you are working is your ability to go to work. That income creates and builds your financial security.

The second period is in retirement. We usually refer to this as Long Term Care planning. Most people look at this issue and say “I can’t afford to pay for “Long Term Care insurance” and then forget about it. Since this is the second biggest concern for retired folks (after running out of money), I want to offer some alternative strategies as well.

After all, according to the Department of Health and Human Services (HHS) 70% of all folks who make it to 65 will need assistance for more than 90 days with the average length for care of 3 and a half years! That can cost hundreds of thousands of dollars! No wonder so many end up bankrupt after paying for care for a family member or spouse.

It Won’t Happen To Me, Until It Does

When I was 16, and a junior in high school (a very long time ago!), I made a friend who I am still close with today. I got to know his entire family very well and spent a lot of time at his house, dinner, hanging out, working on the house and generally doing the things that high school kids did back in the 60’s.

His father was a very active guy in his 40’s, he worked on their cars, had a shop in the garage where he built a lot of stuff and worked very hard. Today we would call him “dynamic”. One day, I was at his house and things were different. His dad had a cane and everyone had a very serious look on their face. It turned out that he had just been diagnosed as having Multiple Sclerosis (MS).

Having a plan in place can be the difference between recovery and disaster!

Suddenly, his whole life was turned upside down. He could no longer work, his condition deteriorated rapidly and in a year or so, he was in a wheelchair and crutches full time. He was told that if he worked out in water, he could slow the advance of the disease. So he started going to the YMCA 5 times a week.

He had hand controls put in his car so that he could drive himself. After another couple of years, he built a new home that was wheel chair friendly (ramps, bigger doorways to accommodate the wheelchair, etc.) and stayed active. He even rebuilt the shop in his garage so he could continue to build and fix things.

One day, while I was in college and home on a visit, he and I were talking and I asked him how he could do everything he had done, without being able to work. He explained that he worked for an insurance company and they had coerced him into buying Disability Insurance. He said that he was reluctant because he thought it was a waste of money and he didn’t believe in it. He was more an advocate for life insurance. He said if his boss hadn’t bugged him to do it, he didn’t know what would have happened. Instead, he had an income that allowed him to live a relatively “normal” life. It is a conversation that had a big impact on me about the value of planning.

Not all stories have this kind of happy ending.

10 Things You Can Do Today To Make Sure You Can Continue To Enjoy Life

1) Have a written plan. If something goes wrong, you will know what to do and where the money will come from, especially if you self insure. Have instructions as to what assets to sell to provide the income or benefits you will need. That will help guide someone who is looking out for you if you are unable to care for yourself.

2) Know your benefits. If you have disability coverage at work, know what it will pay for, and for how long. Many are surprised that their policy only covers a year or two or only replaces 40% of their income. What has to happen to trigger benefits? What stops your benefits?

3) Does your employer have subsidized Long Term Care insurance available at open enrollment? Often employers can negotiate big discounts for their employees to purchase Long Term Care Insurance. That discount can make this coverage affordable.

4) Take advantage of supplemental disability coverage. Does your employer offer additional coverage that you can buy? Frequently, the cost is minimal, and you can dramatically increase the benefit you receive.

5) Is the money you will get tax free? If your employer pays, the benefits are taxable, if you pay, they are tax free (for the most part; there are exceptions to both).

6) Is my coverage portable? If you move to another company or go out on my own, can I take it with me?

7) Look into using retirement funds to create a leveraged long term care benefit. There are some tax advantaged opportunities to create tax free benefits using a little known provision of a 10 year old tax law.

8) Consider using assets that are designated for your heirs. There are ways to increase the power of those funds by repositioning them and getting 4,5 or more times the benefit, tax free, for your care, and if it isn’t needed for care, it can increase the inheritance your heirs will receive.

9) Look into government programs. Here in California we have something we call SDI, which is state disability. It has a short waiting period and will provide tax free income for up to a year. During the current health crisis, there are many temporary programs that will help you pay for housing, food and other costs you may struggle with if you can’t do everything for yourself.

10) Consider expense reduction. Income and expenses need to be in balance. If you are coming up short, you need to increase income or decrease expenses. For example, today, we have programs that will allow you to postpone or skip some rent and mortgage payments. There are other enhanced benefits for unemployment (and extra $600 per week) and for small business owners. Be sure to check these out.

I hope these suggestions help you consider planning for these possibilities. They are more likely to challenge you than many things we plan for. The chance of my house burning down is less than 1% , but I would not avoid having homeowners insurance.

Given the probability that you will be confronted with one of these issues, please take the time now to put your plans in place. You will be amazed at the peace of mind you will experience.

If you would like more information about the programs I have mentioned, or just want to discuss your specific options, contact us through our website and we will be happy to help any way we can.
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