Critical Diagnosis and Family Finances

A critical diagnosis changes a family's finances from two directions at once: expenses appear that didn't exist before and, almost always, income falls, because the person who's ill, and often the person caring for them too, works less or stops working for a while. The good news is that a good part of that impact can be foreseen and prepared for calmly, well before you need it.

This article isn't about medicine: that's what your doctor is for. It's about money, paperwork and decisions that are better made with a clear head. We suggest a four-step method and a checklist to go through at home.

What changes in the household finances

Expenses that appear

Even when the public health system or health insurance takes care of medical treatment, expenses tend to appear around it that neither usually pays directly. The most common are:

• Travel. Trips to and from hospital, parking, taxis when you can't drive. In the Canary Islands, if a test or treatment takes place on another island or outside the archipelago, flights and accommodation for whoever accompanies you are added on.
• Help at home. Someone to look after children, dependent elderly relatives, or the tasks previously done by whoever is now in treatment.
• Adaptations. Small building works, furniture, equipment or products the new situation requires.
• Health costs not covered. Whatever falls outside public healthcare or your policy, depending on the case.
• Hidden costs. Eating out on hospital days, higher utility bills from spending more hours at home, and paperwork and admin.

Income that falls

On the other side, income tends to take a hit. If the person who becomes ill is an employee, statutory sick pay may not match their salary, especially if they were earning bonuses or variable pay. If they're self-employed, the impact can be greater, because the business depends directly on their presence; we cover this in detail in self-employed and critical illness. And quite often a partner or family member also cuts their hours to provide support. Exactly what state benefits you'd be entitled to, and how much, depends on your employment and contribution record: it's worth checking with your accountant, your employer or Social Security.

Expenses that stay the same

The mortgage or rent, the electricity and water bills, school fees, the car, loans and your insurance premiums themselves don't stop. It's precisely the combination of fixed expenses that don't fall with income that does that creates the strain.

Step 1: map out your figures

Sit down with a spreadsheet or a sheet of paper and note down three columns:

1. Essential fixed monthly expenses. Housing, utilities, food, school, loans, insurance.
2. Net monthly income of each household member. And which of these depend on that person being able to work.
3. Available cushion. The savings you could access without penalties or delays.

With those three figures you can do the calculation that matters: if one person's income were reduced for several months, how many months could the household cope on the available savings? That answer tells you how much extra protection you need, if any at all. It's a calculation for your own figures; there's no number that fits every family.

Step 2: review what you already have

Many families have more protection than they think, or less. Gather all your policies and check, for each one, what would happen in the event of a critical illness:

• Life insurance. Check whether it includes a critical illness capital advance, one of the standard covers on our life insurance, and on what terms. Also check the one linked to your mortgage, if you have one.
• Health insurance. What private care you have, with which network of specialists, and whether there's a co-payment. If your policy includes a second medical opinion, make a note of it.
• Funeral insurance. Some funeral insurance policies can optionally include a daily hospitalisation benefit for illness or accident. Check whether yours has it.
• Long-term care insurance. If you have special long-term care insurance, remember that it responds when severe or major dependency is recognised, not on diagnosis itself.
• Group insurance through your employer or collective agreement. Sometimes these include life or disability cover that no one at home knows about. Ask your employer for the certificate.

By the end you'll have a clear idea of what gaps remain. If you don't understand what a policy says, bring it to us: it's exactly the kind of review we carry out every day.

Step 3: cover the gaps

With the figures from step 1 and the inventory from step 2, you can see what's missing. The usual pieces are:

• An emergency fund. Liquid savings, kept separate from the rest, meant for the unexpected. It's the first line of defence and doesn't depend on any policy.
• Critical illness cover. As an advance within life insurance or, depending on the insurer, as independent cover. It gives you liquidity exactly when you need it. We explain it in what is critical illness insurance.
• Income protection. Especially if the household includes self-employed people or salaries with a lot of variable pay.
• Reviewing your life cover. If an advance is claimed, the sum left for the family falls. It may be worth adjusting it.

An important detail: these covers are taken out while you're in good health. Once there's a diagnosis, it's very likely you'll no longer be able to take them out, or that exactly what matters will be excluded. There's also usually a waiting period from when you take out cover. That's why planning makes sense now, not afterwards.

Step 4: get your paperwork in order

When a diagnosis arrives, no one has the presence of mind to go hunting for documents. Have ready:

• A folder, physical or digital, with all your policies, the insurers' phone numbers and your broker's.
• Your life insurance beneficiary designations, reviewed and up to date.
• Access for someone you trust to accounts or the information needed, with the appropriate permissions. If you need arrangements such as powers of attorney, check with a notary or a lawyer.
• A list of direct debits and due dates, so no one loses cover through an unintentional missed payment.

Common mistakes

• Thinking only about medical expenses. The real gap tends to be in income and in the costs around treatment, not in the hospital bill.
• Dropping policies to save money. In a difficult moment it's tempting to cancel policies; doing so without checking what you'd lose can turn out to be very costly.
• Not reporting in time. If you have critical illness cover, report the diagnosis as soon as you can and gather the reports the insurer requests. Your broker can handle that process.
• Improvising with the money received. If you receive a lump sum, before making any big decisions, set a priority order: fixed expenses, treatment and care, cushion, and only then everything else. For tax or investment decisions, speak to an adviser.

Checklist to go through at home

1. I know how much we spend each month on essentials.
2. I know how many months the household could cope if one salary fell.
3. I have all our policies located.
4. I know whether our life insurance includes a critical illness advance, and how much it advances.
5. I know the waiting period and exclusions of that cover.
6. The beneficiaries are up to date.
7. Someone else knows where everything is.

If any answer is "I don't know", that's where to start.

How we help you at Retuerto y Asociados

We carry out the step 2 review with you: we read your policies, tell you what would happen in the event of a critical illness, and where the gaps are. If they need filling, we compare several insurers and give you the terms in writing before you decide. You'll find the details on the critical illness insurance page. To get started, ask for a free quote or get in touch via contact.