Terminally Ill

What Is Terminally Ill?

Terminally ill is a medical term that refers to a person who has a disease that cannot be cured and that will eventually lead to their death. Typically, a doctor will use a range of days, months, or years to forecast the life expectancy of someone who has a terminal illness. During that time, the patient will often want to get their affairs in order and plan accordingly, including figuring out their finances and estate planning.

Understanding Terminally Ill

Terminally ill people and the people closest to them have several administrative tasks to consider when assessing the end-of-life process. Among others, relevant issues include assessing the extent of the ill person's health insurance coverage, disability coverage, life insurance, and estate planning documents.

A key consideration is the cost of living with the illness and what the person’s health insurance will cover. Questions to answer include understanding the extent of coverage, pinpointing any relevant lifetime maximums, and determining potential eligibility of experimental treatments and disability insurance, including the use of Social Security disability benefits.

Existing life insurance policies may be able to cover some costs. For example, the policyholder may be able to tap into the cash value that the policy carries, either by withdrawing it outright and giving up the right to a death benefit or by borrowing against it. As an alternative, some life insurance contracts allow the policyholder to collect on an accelerated death benefit that does not count against a person’s gross income.

A viatical settlement could be another option for someone who's terminally ill to consider. In this scenario, the insured sells their policy to a third party that pays a percentage of the policy’s normal death benefit. Similar to an accelerated death benefit, any proceeds received are excluded from gross income.

Terminally Ill and Estate Planning

It is important for the terminally ill and their advisors to review and update key information pertaining to their estate. For example, a living will gives the person control of their medical treatment, including whether it should be withheld should the person become incapacitated. This document may also be referred to as an advance medical directive.

In addition, a last will and testament should be drafted, updated, or reviewed. Doing so will ensure that the individual is able to direct their end-of-life wishes, including asset allocation, as they see fit. Among other items, the will should speak to the appointment of guardians, executors, and trustees. The terminally ill person may want to assign a healthcare proxy, which allows another person to make medical decisions on their behalf, should they become unable to do so. As part of that process, the proxy should make sure to learn how the person wants their healthcare to proceed and to make representative decisions of the plan.

Outside of healthcare, granting someone power of attorney in the event of incapacity can be beneficial when managing and eventually settling a person’s affairs. Power of attorney gives another person the ability to act on someone’s behalf in terms of legal, financial, and business matters.