Estate Planning for the Terminally Ill
By ROBERT O'CONNOR
Recently I was asked to assist a friend of mine, whose relative had recently been diagnosed with terminal cancer. The doctor's report indicated that death would come within a year.
As someone well versed in estate planning, I was certain that I would uncover an excellent package of employee benefits through her employment at a very large Canadian university.
She had worked there for more than two decades, but to my dismay and surprise, she had no life insurance coverage! The university had not insisted that she be covered for disability insurance and, more importantly, for her at this critical time, life insurance.
Her employment preceded collective agreements that made enrolment mandatory. Had she been enrolled in their employer-sponsored group life insurance contract, she could have obtained a lump sum payout of up to 50 percent of the sum insured, in this case $15,000.
Employer-sponsored group life insurance has in the past only been paid out when the life insured person dies and then the sum insured is paid either to the estate or a named beneficiary.
In the early 1990s, the demand for money to pay for medical bills for the terminally ill, people with AIDS for instance, brought about a new paradigm in thinking. "Why couldn't a person, if diagnosed with a terminal illness, receive a portion of the amount they were insured for, rather than waiting for death to occur for the sum to be paid out?"
This is called a living benefit, and if it is from a group life insurance policy, it is referred to as viatical payment, the word "viatical" being derived from the Latin Viaticum: 1) The Christian Eucharist given to a person in danger of death, or 2) an allowance or provisions for a journey.
How magnificent it would have been if this life insurance policy could have been a financial conduit for her in the final months of her life. Alas, there was absolutely no disability or life insurance coverage through her employer.
Although her medical bills had been paid in full, another set of economically cruel circumstances had confronted her, causing her to lose her home and live on charity for the final months of her life.
These circumstances are tragic, yet so unnecessary. The university may have saved a matter of pennies a day in insurance premiums by not extending to her this very important coverage, but in my opinion, they were recklessly imprudent in not doing so.
In the final months of her life, she literally had to beg to survive, and suffered a very undignified death.
If you know someone who is terminally ill and would like to have access to some extra funds before they die, they can 1) Access any life insurance policy that is in their name, no matter who the beneficiary is, and 2) access money in a registered pension plan.
After their death (if they worked in the UK) their spouse could be entitled to a £2,000 bereavement allowance, and the deceased estate could also be entitled to up to $2,500 for funeral benefits from the Canada Pension Plan.
Robert O'Connor is a keynote speaker and conducts financial services seminars. This article is extracted from one of those seminars. He can be reached via email: roconnor@telus.net or telephone: (604) 682-8087.
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