Creating a Long-Range Insurance Plan for the "Uninsurable"
March 2006
With this real-life example, I hope to enlighten
those affected by chronic illness about information you need to know about both
individual and group insurance products and government insurance programs, and
how to use these tools to help develop a long-range insurance plan, considering
all the added issues related to having a chronic illness condition.
by Jack Hungelmann
Corporate 4
Insurance Agency, Inc.
The two previous articles on this topic deal with the insurance products and government programs available to those deemed
uninsurable for most life, health, disability, and long-term care products.
Here's an example from my own client files illustrating how to apply all these
programs to the life of a young person with a chronic illness—in this case Parkinson's—and
caregiver.
Larry and Mary's Story
Larry and Mary, both age 40, are professionals. Larry is a self-employed
consultant; Mary is a CPA in a medium-size accounting firm. They have two children
and a nice residence in St. Paul, Minnesota. Larry earns $50,000 a year; Mary
earns $75,000.
Five years ago, Mary developed a small tremor in her left hand. Three years
ago, she was diagnosed with Parkinson's Disease. Mary still works full time,
but her efficiency and speed are dropping off.
Larry has the following insurance on himself:
- A $300 deductible major medical health policy for which he pays $250
a month, $3,000 a year.
- A $50,000 life insurance policy.
- No disability or long-term care insurance.
Mary has the following insurance on herself:
- A group health insurance policy at work to cover her and the two children.
- A group long-term disability policy covering 60 percent of her $75,000
salary to age 65.
- A $50,000 life insurance policy.
- No long-term care insurance.
The Problems and Recommended Solutions
Here are the problems with their current program, the changes I recommend
they make, and the reasons why.
Mary First
Life insurance amount of $50,000 is grossly inadequate. Increase life insurance coverage to $750,000. (I recommend 10 times income.
If you have to die early, be generous.) Not all insurance companies will insure
someone with Parkinson's, but some will. The cost will be higher but affordable.
She should also check for the availability of additional life insurance at work.
If you can find coverage in the open market, private ownership is always better
because it won't end with the job.
What to do about health insurance when I have
to leave the job and can't qualify for a private coverage because of the Parkinson's? Keep the group health insurance on yourself as long as you can. Know that if
you have to leave your job for disability or any other reason, federal COBRA law gives you the option to continue
the group coverage for up to 18 months at your expense. If you aren't eligible
for COBRA or your 18 months COBRA runs out, federal HIPAA law guarantees you the right to
continue coverage on a state-approved private health policy with no medical
questions. Preexisting health problems, like Parkinson's, must be covered as
long as you have uninterrupted coverage. If you qualify for and receive benefits
for 2 years for Social Security disability, apply for Medicare and
buy a good Medicare Supplement policy.
How to prevent my children from being penalized
on their health insurance coverage and premiums because of my health issues? Move your two children, if healthy, off your policy and either onto Larry's
policy as dependents or set them up on their own personal policies. Making this
change now while they are healthy doesn't limit their choices to just COBRA
and HIPAA options later if their health worsens.
What can I do if I lose my job and lose my disability
insurance? Continue your disability coverage as long as you can. If you
lose your coverage because of a work layoff or because the employer quits offering
the coverage, find out if the group plan offers a conversion to an individual
plan. If so, take the option. Coverage is guaranteed with no exclusions for
preexisting Parkinson's.
I will certainly need long-term care with Parkinson's
but cannot qualify for long-term care insurance. Unfortunately, long-term care insurance will probably not
be available to you. However, Larry can provide care for you for quite awhile.
His ability to do that is an asset to you. Protect that asset with substantial
insurance coverage on him in all major areas. Then, if you lose his help due
to his death, his long-term disability, or his own need for long-term care,
you will receive substantial compensation to help offset your own long-term
care costs and reduce the drain on your assets.
Now Larry
How to reduce health insurance costs to offset
insurance cost increases in other areas? Assuming good health, look into
changing your health insurance to a Health Savings Account, combined with a
high deductible health policy. Then take the HSA contribution as a deduction
on your personal income tax return. Include the kids in the coverage if they
are both healthy.
How to pay for long-term care costs for Mary if
I die before her and she has to buy the services I provided elsewhere? Buy $1 million of life insurance—$500,000 (10 times income) to replace your
income and another $500,000 to care for Mary since she has no long-term care
insurance, and she has lost her caregiver, forcing her to hire care elsewhere.
What about replacing my services as I become disabled? Buy long-term disability insurance for the maximum coverage your income qualifies
you (a $50,000 salary should qualify you for about $3,000 a month tax free).
Get coverage to at least age 65. Be sure to include these optional coverages:
- Residual disability—pays you a proportional
partial benefit when your disability causes you to lose 20 percent or more
of your income (with Parkinson's, my income has dropped 50 percent, so my
policy pays me 50 percent of the maximum benefit each month).
- Cost of living adjustment—so your
benefit when disabled keeps up with inflation.
- Future purchase options—so you have
the right every couple of years to increase your disability coverage as
your income increases—regardless of the state of your health.
My own risk of long-term care combined with Mary's
inability to provide that care for me. Buy long-term care insurance because
Mary won't be able to provide the care due to her own disability. Make sure
it includes a compound interest annual benefit increase and full 100 percent
home healthcare.
Conclusion
In closing, to personal lines insurance agents practicing personal risk management
with their clients, I hope you find the information in this article useful.
Please feel free to share a link to this article
with any of your clients facing chronic illness which has or will impact their
insurability.
For anyone wanting more information on individual or group insurance programs
and federal government laws that affect these programs, pick up a copy of Jack
Hungelmann's book Insurance for Dummies at any bookstore or on Amazon.com.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.