Funding Care

Financial Implications of an Ill Parent

A major concern when a parent falls ill is ensuring that there is money to pay for the care they need. While basic, essential medical expenses are covered by government plans, additional expenses such as in-home or residential care can be substantial. There are a number of sources of funding for these costs:

  1. Self funding by your parent

    Your parent may be in the fortunate position that they have ample savings and may even have anticipated this sort of situation. In this case you need to help them estimate the expected costs and set up a plan to fund them. Your financial advisor can directly assist you in this area. Depending on the state of their health, your parent may be able to make the investment decisions. However, if they are incapable or uncomfortable with this, you and/or other family members may decide to take over the financial decision making. This is where you need a Power of Attorney.

    If your parent is planning on using assets to cover medical costs, there may be some estate planning issues that need to be discussed with your advisor. Does your parent want to erode the inheritance he will leave his children? Are there ways to preserve the estate while funding these extra medical costs?

  2. Funding or funding assistance from the family

    If your parent does not have the financial resources to support themselves when experiencing an illness, it may be necessary to receive support from the family, probably the children. Although it is safe to say that children want the best for their parent, financial sacrifices can place hardship on the children. In order to avoid family conflicts, it is very important that the family is in agreement on how to arrange the financial support. For example, there may be situations where some children are in a better financial position than others. However, the family may decide that those with less financial ability provide more direct non-financial support so each is contributing in their own way. Your financial advisor can help you set up a plan that works for everyone.

  3. Government Pensions

    If your parent has been a contributor to the CPP during their working lives and are less than age 65 they will probably be eligible for some CPP disability pension. To receive the pension they will need to meet the CPP definition of disability. The maximum current CPP disability pension is about $1,265 per month and is considered taxable income. Your advisor can assist you in describing the specifics of the program and how an application can be made.

  4. Private Pensions

    If your parent was a member of a private pension plan and has not yet started receiving benefits, most pension plans will provide an early pension if they meet the plan definition of disability. The pension sponsor should be approached to determine the specific benefits provided.

  5. Private and Group Insurance Benefits

    Insurance can be a very important and welcome source of financial support when a person becomes disabled due to illness. There are various types of coverage that may be available.

    Types of Coverage:

    Your parent may be eligible for the following types of insurance benefits due to their illness:

    • Critical Illness Insurance
    • Disability Insurance
    • Long Term Care Insurance
    Critical Illness Insurance

    This insurance is designed to pay a lump sum to the beneficiary if the insured incurs one of a specific list of afflictions. Although some policies are more comprehensive, most policies will pay benefits for the following afflictions/conditions:

    • Cancer
    • Coronary bypass surgery
    • Heart attack
    • Stroke

    Generally, benefits will be paid if the patient survives for 30 days after diagnosis. The insurance company will require qualified medical evidence of the condition to ensure it meets their requirements.

    The benefits received can be used for any purpose and do not necessarily have to be used for medical costs. The benefits are received tax free.

    If your parent has a Critical Illness policy in place, the insurance company’s claims department should be contacted.

    Disability Insurance

    Disability policies are designed to replace income lost due to accident or sickness. Consequently, if your parent is retired they will probably not have disability insurance. However, if they are still employed, they may be able to receive disability benefits. There are many different disability policies and the definition of what constitutes disability will vary as will the amount and duration of the benefits.

    Long-Term Care Insurance

    Long-Term Care policies are ideal for situations where a person cannot take care of themselves and require either in-home or institutional care. Although policy terms vary widely, a common feature is that benefits will be paid when the insured is unable to perform two of the Activities of Daily Living (ADLs) which are:

    • eating
    • bathing
    • dressing
    • using the toilet
    • transferring position

    The benefit will typically be paid monthly and the amount received can vary from about $500 to as much as $10,000.

    Some policies are ‘indemnity’ policies where the amount received will be directly related to the costs incurred. Others will pay a set amount and the money can be used as the beneficiary sees fit.

    You should speak to your advisor or insurance professional to determine the exact nature of your parent’s coverage and how to proceed in making a claim.

    Private and Group Insurance

    Although individual insurance tends to provide more comprehensive benefits than group plans, group coverage can be very helpful. If your parent has individual insurance, your advisor or insurance professional can give you direct assistance in determining what the coverage is and how to go about making a claim on your parent’s behalf. If your parent has group coverage then his or her employer should be approached to determine what benefits may be available. The types of insurance discussed above are often provided to some extent by group plans.

    If you are covered by a group plan through your employer you should also approach the appropriate people to determine if your plan has provisions that can help you in assisting your parent with their illness. Depending on the plan they may offer financial support or the option of more flexible work hours.