Expert Commentary

Creating a Long-Range Insurance Plan for the "Uninsurable"

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.


Personal Risk Management
March 2006

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. Expert Commentary articles and other IRMI Online content do 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.

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