Patient Solvent in Sickness and in Health

Ten years ago, Carlos Sifuentes made two important moves that saved his financial life.

One, buying disability insurance, is highly recommended by financial planners. The other, buying supplemental hospital insurance, is often dismissed as being too expensive. But having both policies turned out to be wise when Sifuentes was found to have AIDS.

Not only has he been able to stay afloat financially, but the policies also helped him set aside $30,000 even as he had to quit his job, move in with his mother and deal with health crises. He was also lucky that his medical costs, co-payments and out-of-pocket expenses have been less than those of many AIDS patients.

Now his health is more stable and he wants to start planning for the future, investing some of the money for growth. But like many people with a serious illness, he also wants to preserve his principal.

Financial planning for people with AIDS, as well as other life-threatening conditions with unpredictable outcomes, requires that two-track approach.

“The key to living successfully with a life-challenging condition is to strike the critical balance between expecting the best and preparing for the worst,” said David S. Landay in “Be Prepared: The Complete Financial, Legal and Practical Guide for Living With a Life-Challenging Condition,” published by St. Martin’s Press.

Improvements in AIDS treatments have allowed 34-year-old Sifuentes to gain more sway over his own life and think about longer-term possibilities. “For the past four years, many aspects of my life have been in the hands of others,” he said. “Now it is time for me to regain control.”

But he still needs to think conservatively. “There may come a day when the condition you have is cured or goes away. Or there may come a day when the condition gets worse and you may need to use some of the money,” said fee-only certified financial planner Margie Mullen, who reviewed Sifuentes’ finances for The Times. “That second part I need to be careful of.”

Sifuentes learned he was HIV-positive seven years ago, but even five years ago he was feeling pretty good. He had an interesting, $33,000-a-year job as an architectural designer for a small New York firm whose projects included an annex at the Guggenheim Museum and renovating Sony Music’s offices in Miami’s South Beach. He shared a rent-stabilized apartment but allowed his credit card debt to rise steadily to $12,500.

Then, in 1994, he received the AIDS diagnosis.

Too sick to work, Sifuentes returned to his native East Los Angeles to live with his mother, now retired. Since then, he has been hospitalized five times.

“When I found out my condition, it really dawned on me that I had to be realistic,” Sifuentes said. “Then I stopped the spending.”

Insurance His Best Investment

His basic needs--such as his basic health-insurance premiums--are paid for out of his $1,145 in monthly Social Security disability payments. In addition to that, the private disability coverage paid $9,000 in benefits. Although it was exhausted in 1996, the policy can be reactivated if Sifuentes goes back to work for two years.

The extra hospital insurance is a limited policy that pays a set amount for each day spent in the hospital, regardless of other insurance. Sifuentes receives about $200 a day when he is hospitalized from two policies that he obtained through credit card company offers. He considers it the best investment he ever made. Tucking away some of these benefits while keeping other costs down is how Sifuentes accumulated any savings at all.

In “Be Prepared,” Landay suggests buying several of these policies, although they are not as easy to find as they were a decade ago. While most financial planners consider the coverage a waste of money, it certainly can be valuable for someone with a good chance of having several hospitalizations. The payments can fill in the gaps not covered by regular insurance or allow financial flexibility for other reasons. Sifuentes was glad to have it when he paid his $2,000 share of the cost of a recent hospital stay.

Sifuentes, who bought his policies before he knew he was HIV-positive, made a wise decision. But many people put off buying disability or supplemental health policies until it is too late.

Financial planners typically recommend disability coverage for just about everyone--the independently wealthy or people with complete confidence that their families would take care of them if necessary are the only exceptions. Supplemental hospital policies, if you can find one, are valuable in fewer situations and thus less likely to be worthwhile.

In any case, either coverage is difficult, if not impossible, to obtain when someone is already sick or found to have a disease. Most disability providers require a physical exam that would turn up health problems.

Even those that don’t have exams do require that the insured person disclose known health problems. Failure to do so on the forms could be considered fraud, which would allow the insurer to cancel the policy at the very least and prosecute the former client at the very worst.

Landay said the best way to obtain coverage when you can’t get it as an individual is to get a job with insurance benefits. Waiting periods for preexisting conditions are limited if you join through an employer or professional group’s health plan. And laws have been toughened to discourage employers from weeding out employees because of their higher risk of serious disease. Once you have insurance, you can generally retain it forever if you keep up payments.

The Risks of Returning to Work

Insurance is crucial, but it is not the only financial issue related to major illness. Sifuentes’ financial situation benefited from other factors. His student-loan debt was excused thanks to a provision in the loan forgiving debt for disabled individuals. Furthermore, he doesn’t own a car--in fact he hasn’t trusted himself with one in the last few years.

As his health improves, he may consider a car, or returning to New York--or working again.

But that is one of the most difficult decisions faced by the chronically ill, said Jacques Chambers, manager of the benefits program at AIDS Project Los Angeles. A chief concern for many people is jeopardizing the income safety net they have carefully set up during their illness, such as disability-insurance benefits. “Some of my clients fear that if they go back to work and can’t make it, they’re stuck,” Chambers said.

Because of this problem, a few agencies are experimenting with making it easier for people to requalify for disability if a patient is unable to work again a few weeks or months after taking a job.

For Sifuentes, his immediate concern is what to do with his savings. Investing the reserve, which currently lingers in certificates of deposit and a bank savings account, is what made him seek advice from a financial planner.

This year, Sifuentes has been following certain mutual funds to see how they are faring and test his comfort level with investing.

“Being cautiously optimistic, I would like my financial future to reflect the same,” Sifuentes said. Mullen told him this was an excellent way to get started.

Overall, she recommended placing half in short-term bonds and cash investments and half in one or more stock funds--an allocation geared to provide quick access to portions of the money along with the potential for better returns.

Specifically, she recommended Sifuentes keep the $7,500 currently invested in certificates of deposit where it is and take $3,750 from his savings account and place it in Vanguard Fixed-Income Securities Short-Term Corporate Portfolio (five-year average annual return: 6%) and put another $3,750 in Vanguard Fixed-Income Securities Intermediate-Term U.S. Treasury Portfolio (five-year average annual return: 6.3%). Although the risk of losing money in such funds is greater than in an insured bank account, it is very small and justified by the extra yield.

Mullen also recommended placing the remaining $15,000 into a stock mutual fund with a long time frame. She suggested Janus Worldwide (five-year average annual return: 22%), which has been broadly lauded and thus tripled in size in the last two years--although the current Asian economic crisis has slowed the amount of new money going into the fund.

“It is one of my favorite funds,” Mullen said. “It has a terrific track record.” The fund invests primarily in foreign and domestic stocks, and its investments are usually spread across five countries, including the United States.

Regardless of what stock fund Sifuentes buys, Mullen said that because of the market’s recent volatility, he should invest the $15,000 slowly over the next six months to a year. Spreading it out reduces the risk of investing all the money at the wrong time.

Sifuentes was pleased with Mullen’s advice, noting that he had been tracking Janus Worldwide for the last few months and feels very comfortable purchasing it.

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This Week’s Make-Over

* Investor: Carlos Sifuentes, 34

* Gross annual income: $13,740 in Social Security benefits

* Financial goals: Maximize returns from savings without undue risk.

Current Portfolio

* Cash: About $22,500 in savings account and $7,500 in certificates of deposit.

Recommendations

* Place half of assets in bonds and cash and half in one or more mutual funds.

* Keep large portion of money accessible in case of medical emergencies.

Recommended Mutual Fund Purchases

Janus Worldwide: (800) 525-3713

Vanguard Fixed-Income Securities Short-Term Corporate Portfolio: (800) 662-7447

Vanguard Fixed-Income Securities Intermediate-Term U.S. Treasury Portfolio

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For Your Financial Health

If you are facing a life-threatening illness, here are some financial considerations to bear in mind:

* Health coverage: If you don’t have adequate health insurance, don’t assume it will be impossible to get. Consider changing jobs, even if it means a pay cut, if another employer would offer better coverage. Your professional or alumni association may have a health plan. Those who are disabled are often eligible for government coverage such as Medicare or Medicaid.

* Retirement savings: If your financial circumstances allow it, continue putting money in retirement plans, unless death is imminent. You’ll continue to reap the tax benefits, and most such plans will allow you to withdraw the money without penalty if you become disabled.

* Investment choices: Overall, your portfolio should be more conservative than that of a healthy person of the same age group. Avoid complicated or illiquid investments--you may need to tap the money quickly. As life expectancy decreases, maximize your readily available cash.

* Real estate: Do not buy a home unless there are overriding emotional or financial reasons. Real estate is an illiquid asset, and the maintenance homeownership requires could become a physical as well as a financial burden.

* Other savings: If you have the means, set aside a “cure fund” for yourself. This would be money to cover new, perhaps experimental, treatments for your condition that insurance would be unlikely to cover.

Source: “Be Prepared: The Complete Financial, Legal and Practical Guide for Living With a Life-Challenging Condition,” by David S. Landay (St. Martin’s Press)

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Meet The Planner

Margle Mullen is a fee-only certified financial planner with Mullen Advisory in Los Angeles. She specializes in retirement planning and portfolio management.

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Lynda Natali is a regular contributor to The Times. To participate in a published Money Make-Over, send your name, age, phone number, income, assets and financial goals to Money Make-Over, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. We cannot respond to all inquiries.

Information about choosing a financial planner can be found at The Times’ Web site at https://www.latimes.com/finplan. The site offers stories, phone numbers, addresses and links to related sites.