What is it?

When you get sick and can’t work or can work only on a reduced schedule, it’s likely that your biggest worry apart from your health is how you will survive financially. This is particularly worrisome to people who are single, people who are the primary breadwinners for their family, and people who expect to recover slowly from their illnesses. It’s hard to know sometimes how long your illness will last even though statistically, most disabling illnesses or injuries last less than 12 months. That’s still a long time to survive financially if you can’t work. The key to staying afloat financially when you’re sick is to take advantage of all the sources of income available to you and to cut expenses where possible.

Sources of income: disability benefits

Many people think of disabilities as crippling injuries. However, disabilities can also be caused by illness (both physical and mental). Basically, any illness or injury that lasts a certain amount of time and limits your ability to work and earn income may potentially be considered a disability, at least for insurance purposes. You may be eligible to receive disability benefits from a group disability insurance policy through your employer, an association, or lending institution; through an individual disability insurance policy; or from a government benefit program. If you are entitled to benefits, however, don’t expect them to completely replace your lost earnings; most disability benefit programs aim to replace only 50 percent to 70 percent of your predisability gross earnings.

Workers’ compensation

Every state has workers’ compensation laws designed to pay benefits to workers who are disabled as a result of work-related illnesses or injuries. An accidental injury is a compensable injury only if your job was the source of the injury and the injury occurred during the course of employment. An illness is considered work-related only if it qualifies as an occupational disease. To qualify as occupational, the illness must result from employment and be caused by conditions specific to that employment or occupation. If your injury or illness is not work related, you can’t receive workers’ compensation benefits, and you’ll have to seek other sources of disability income. Check with your employer regarding your state laws if you think you may be entitled to disability benefits under workers’ compensation.

Social Security disability benefits

Two programs administered by the Social Security Administration pay disability benefits. The Social Security disability insurance program pays benefits to qualified individuals who are under age 65, regardless of income. The other program, Supplemental Security Income (SSI), pays benefits to qualified individuals who are either over age 65 or blind or disabled and who have limited income. Neither program covers partial disability, and both programs strictly define disability. The impairment must prevent you from earning a substantial income, must be medically determined, and must last or be expected to last 12 months or more, or result in your death. Like other Social Security benefits, disability benefits are based on your Social Security earnings record.

Tip: If you are entitled to receive Social Security disability benefits, you may eventually be entitled to receive Medicare benefits if your disability is long-lasting. If you are eligible to receive benefits under SSI, you may be entitled to receive Medicaid benefits.

Other government disability benefit programs

If you are an active-duty service member, a disabled veteran, an employee of the federal, state, or local government or if you reside in certain states (for example, California, Hawaii, New Jersey, New York, Rhode Island, or Puerto Rico) you may be covered by a government-sponsored disability benefit program.

Disability benefits from individual or group disability insurance policies

If you were employed when you became ill or you own an individual or group association disability policy, you may be able to receive disability benefit payments. If you are covered by an employer-sponsored plan, you should have received a certificate of coverage from your employer and you may be paying part of the premium cost. However, it’s wise to check with your employer just in case. If you are covered by an individual or group association disability policy, file a claim right away with your insurance company.

Credit disability insurance

If you have a car loan, a credit card, or any other type of loan or line of credit, check with your lender to see if you are paying for a credit disability insurance policy. You may have signed up for disability protection and forgotten about it. If you have it, the insurance company will make your loan or credit card payments according to the terms of the contract you signed.

Other sources of income

Borrow from a life insurance policy

If you have a life insurance policy with cash value, consider borrowing the cash reserves. You’ll have to repay the money but not right away. However, keep in mind that you’ll be charged interest on the amount you borrow, and policy loans, if not repaid, can reduce the death benefit or even cause your policy to lapse. You may also have purchased an accelerated death benefit rider that may pay benefits for a catastrophic or terminal illness.

Borrow from a defined contribution plan

If you have established a defined contribution plan such as a 401(k) plan, you may be able to borrow money from the plan up to a certain limit and repay it within five years. In general, the withdrawal will be tax free. However, not all defined contribution plans allow loans and among those that do, provisions will differ, so check with your employer.

Request a hardship distribution from a defined contribution plan

You may ask that funds be distributed to you from a defined contribution plan to pay your medical expenses–a hardship distribution. The distribution cannot exceed the amount of money you need to meet your immediate financial need, and there cannot be other resources available to you to meet that need.

Caution: A hardship distribution from a defined contribution plan may be subject to income tax and the 10 percent early withdrawal penalty, although the penalty may be waived in cases where the plan participant is considered disabled.

Sell personal possessions

If you look around your home, you’ll be surprised at how much you own that you don’t really need. Make a list of things that you want to get rid of and list them in order of priority. If you’re able, hold a yard sale or ask someone to take items to a consignment shop.

Use your savings

If you’ve planned ahead, you may have set aside three to six months of living expenses in an emergency fund. This is a great source of income. if you have it. Many people don’t and are surprised to see how fast a savings account can be depleted when it’s used to pay everyday expenses.

Borrow from friends and relatives

Borrowing from friends and relatives can be difficult and risky. Not only will you have to put aside your pride, but you’ll have to deal with the consequences. Your friends and relatives may be generous, but their generosity may backfire. What if you can’t pay back the money? What if you eat out one night? Will they hold that against you? If you do borrow from a friend or a relative, clearly outline the terms of the loan and put them in writing. That way, you’ll reduce any future chance of conflict.

Work part-time if you can

During your recovery from an illness or injury, you may be able to work part-time at your regular job or at something else. If you want to do this, however, check with your physician. In addition, if you are receiving disability insurance benefits either from an individual or group policy or from Social Security, find out how working part-time will affect your benefits. Many insurance programs will continue to pay you benefits even if you go back to work on a trial basis. Under Social Security rules, you may be eligible to receive benefits during a nine-month trial work period. An individual disability insurance policy may pay you partial or residual benefits if you can work part-time; check your policy or talk to your insurance representative.

Sell your second car

While many people consider a car a necessity, you may be able to raise a large amount of cash quickly by selling a second car. This will depend, of course, on whether you own your car or whether you have a loan for it, as well as on the value of your car. Again, this is a decision that should be made carefully. If you have a loan on the vehicle, call your bank to find out the procedure for selling your car because, until the bank releases the lien, you don’t really own the car. The bank can also tell you the book value of your car and your loan balance. If you own the car outright, research its value at the library or on the Internet and decide the right price. Consider, too, the long-term consequences of your decision. If you are able to go back to work, will you need to buy another car or can you live with only one?

Sell your house (or rent it)

As a last-ditch attempt to remain solvent, selling your house can be advantageous if you can raise a lot of cash this way and if you want to reduce your monthly cash outlay over the long term. It’s not a good way to raise cash for the short term because it will take time to implement and has long-term consequences. Once you accept an offer on your house, you’ll have trouble changing your mind, and the impact on your family will be far-reaching. If you want to temporarily reduce what you pay for housing, however, you may want to consider moving to an apartment (or cheaper housing) and renting out your home for a year or two. However, make the decision carefully after considering its consequences and the amount of cash you can actually raise.

Reduce expenses

Reduce automobile-related expenses

If you are seriously ill and won’t be able to drive your car for several months, call your insurance company and ask how to reduce your premium cost. You may be able to increase your deductibles, get a discount for driving fewer miles, or even suspend collision or comprehensive coverage temporarily. If you have a lien on your car, however, you may not be able to suspend coverage–check with your lender. If you are running out of cash and really need money, consider selling your car. You’ll dramatically reduce your monthly expenses and may even end up with a lump sum of cash. Keep in mind, however, that if you have a loan on your car, you might owe more than your car is worth; if you need to sell your car for less than the loan balance, check with your lender. The lender may not release the title until the loan balance is paid in full, or may require you to take out an unsecured loan to pay the car loan in full. Also, if you recover and go back to work, you may have to buy another car, which means coming up with a new down payment and the up-front fees you have to pay when you buy a car.

Discontinue discretionary expenses

You probably pay for a lot of things you don’t really need. For instance, think about canceling magazine subscriptions, extra phone services, credit cards you don’t use that have an annual fee, health club memberships–without incurring a large cancellation fee, if possible–auto club memberships, cable television, and Internet service.

Tip: If you’re billed annually for some of these things, you won’t save any money unless you cancel them at renewal because you generally won’t get a refund.

Save money on medical expenses

Prescription drugs are often expensive. Two good ways to cut down on the cost of prescription drugs are to ask your doctor if you can substitute a generic drug, if it’s available, for a brand-name drug and also to order drugs by mail. Another way to cut medical expenses is to carefully review your medical bill. If you must be hospitalized, check with your insurance company and the hospital administrator or pre-admissions counselor to find out about extras for which you might be charged, such as supplies, televisions, phone calls, etc. In some cases, you may be able to supply your own, much less expensive supplies for a fraction of the cost of hospital supplies.

Negotiate with your creditors

You’re not alone if you find you’re having trouble paying your bills when you’re ill or injured; disability is behind many of the mortgage foreclosures in the United States. When you can’t meet your financial obligations, seriously consider negotiating with your creditors. Assuming that you have good credit, you may find it relatively easy to reduce the interest rates on your credit cards, skip a payment or two on your car loan, or temporarily reduce your monthly payments. To do this, you’ll have to put aside your pride and admit you’re having financial difficulties. You’ll be in a much better negotiating position, however, if you call your creditors before you get into serious financial trouble. Although they are usually sympathetic if your financial troubles are caused by illness, some creditors still may refuse to negotiate with you. If you need help from a neutral third party, you may want to call a nonprofit credit counseling organization, such as the Consumer Credit Counseling Service (CCCS). For further information on the CCCS, call (800) 388-CCCS.