Overview

Catastrophic illness planning prepares you and your household for the financial shock of a major health event — such as metastatic cancer, a severe stroke, traumatic injury, or organ failure. These events can generate large medical bills, long recovery periods, and gaps in income. A financial preparedness checklist turns an overwhelming problem into a set of manageable steps you can take now to reduce risk and speed recovery.

In my 15+ years advising clients, the single most common regret is not documenting insurance details and not having a clear cash buffer. The checklist below combines insurance optimization, practical paperwork, savings and income protection, and actionable cost-control strategies you can implement on a timeline.

Authoritative reference: For details about public benefits and disability timelines see SSA.gov; for tax-advantaged accounts and medical expense rules see IRS publications (Pub 969, Pub 502); for consumer protection on medical bills and debt see ConsumerFinance.gov.

The financial-preparedness checklist (step-by-step)

  1. Inventory insurance and benefits (30–90 minutes)
  • Collect policy numbers, insurer contact info, group plan details and summary of benefits for every policy: major medical, Medicare/Medicaid, dental, vision, long-term care, disability, and employer-provided life insurance.
  • Note key plan features: deductibles, coinsurance, out-of-pocket maximums, preauthorization rules, network restrictions, waiting periods, and elimination periods for disability plans.
  • Action: store copies (physical and encrypted digital) and add a one-page cheat sheet with phone numbers.
  1. Confirm employer leave and benefit rules (1–2 hours)
  • Review FMLA eligibility and duration, short-term disability (STD) and long-term disability (LTD) benefits, and employer policies for paid leave.
  • Ask HR how COBRA, employer-sponsored continuation, or paid leave coordinates with STD/LTD.
  • Action: get written confirmation of benefits where possible.
  1. Size your emergency fund for health risk (weeks to months)
  • Standard guidance is a 3–6 month fund for most households; for higher medical risk or single-earner families, plan for 6–12 months of living costs plus a separate medical cushion to cover deductibles and out-of-pocket maximums.
  • See detailed strategies at Emergency Fund Basics: How Much, Where, and Why (finhelp.io) for account choices and rules about when to tap the fund.
  1. Evaluate income protection and disability coverage (1–4 weeks)
  • Compare employer-provided STD/LTD to individual policies. Note benefit level (typically 50–70% of pre-disability income), elimination periods and benefit duration.
  • Consider portability: employer plans often terminate when employment ends.
  • Further reading: Long-Term Disability Insurance (finhelp.io).
  1. Maximize tax-advantaged medical accounts
  • Health savings accounts (HSAs) can pay qualified medical costs tax-free if you’re enrolled in a high-deductible health plan; flexible spending accounts (FSAs) can cover predictable expenses but may have use-or-lose rules.
  • Track receipts and plan annual contributions within IRS rules (see IRS Pub 969).
  1. Create legal and care documents (1–2 weeks)
  • Execute an advance directive (living will), medical power of attorney (healthcare proxy), HIPAA release forms, and durable power of attorney for finances.
  • Store copies with attorneys, family, and your medical team. Review every 2–3 years or after major life events.
  1. Estate and beneficiary housekeeping (ongoing)
  • Update life insurance beneficiaries, retirement account beneficiaries, and trusted contacts for financial accounts.
  • Consider a trust if complex assets or special-needs dependents are present.
  1. Build a bill and benefits action plan (days to weeks)
  • Create a checklist for what to do after a diagnosis: notify insurers, enroll in assistance programs, request itemized bills, and ask about charity care and sliding-scale options at hospitals.
  • Track claim numbers, phone calls, and appeal deadlines in a single log.
  1. Cost-control and negotiation tactics
  • Ask for an itemized bill and review charges line-by-line. Common errors include duplicate charges, incorrect billing codes, and unbundled services.
  • Negotiate with providers: request a cash discount, a payment plan, or an income-based reduction. Many hospitals have financial assistance policies; ask for an application.
  • If denied, file a formal appeal with the insurer and follow the insurer’s external review process if available.
  1. Coordinate public benefits and community resources
    • Research eligibility for Medicare, Medicaid, Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), and state-based patient assistance programs.
    • Note that SSDI has an administrative waiting period before benefits begin; check SSA.gov for timelines.

Practical templates and examples

  • Emergency cash cushion: open a liquid high-yield savings or money market account and set an automatic transfer equal to a percentage of your pay. Aim first for $1,000, then 1 month of expenses, then 3–6 months.

  • Medical-bill tracker (columns): date, provider, service, gross charge, insurer payment, patient responsibility, payment plan terms, appeal status.

  • Sample initial phone script to HR or benefits coordinator: “I’m preparing in case of a major illness. Please confirm the short-term and long-term disability coverage amounts, elimination periods, and whether benefits continue during COBRA.”

Real-world example: a client with an aggressive diagnosis used an HSA to cover $25,000 of out-of-pocket chemotherapy costs, and a supplemental critical illness policy that paid a lump sum that covered household expenses while LTD took effect.

Common mistakes to avoid

  • Assuming employer coverage alone is sufficient. Employer plans can change and are typically nonportable.
  • Failing to document conversations with insurers and providers; undocumented promises are hard to enforce.
  • Relying only on savings without income protection. Long recoveries often require income replacement as well as cash for medical bills.
  • Missing appeal deadlines for denied claims or charity assistance applications.

Tax and legal notes

  • Some medical costs are tax-deductible if you itemize and meet IRS rules; see IRS Publication 502 for qualified expenses and recordkeeping requirements.
  • HSAs offer triple tax advantage for eligible plans; contribution limits and eligibility rules are documented in IRS Publication 969. Consult a tax advisor before using retirement or non-deductible accounts to pay medical bills.

How to prioritize actions (first 30 days)

  1. Gather insurance cards and policy summaries. 2. Build or confirm a short-term cash cushion to pay immediate deductibles. 3. Execute medical power of attorney and HIPAA release forms. 4. Call HR to confirm leave and disability benefits. 5. Open a billing tracker and request itemized estimates from prospective providers.

Internal guides from FinHelp

Final professional tips

  • Revisit your plan annually and after any major life change (new job, birth, divorce, or change in health).
  • Keep an emergency binder with digital backups and a short orientation note for the person who will manage affairs in a crisis.
  • Use a trusted financial planner or patient advocate when navigating complex hospital billing or disability applications; these professionals often save more than they cost.

Professional disclaimer: This article is educational and does not replace personalized financial, legal, or medical advice. For decisions about benefits, taxes, or healthcare directives consult a licensed professional.