Managing Finances: The Overlooked IADL That Impacts Long-Term Care Benefits
When people think about long-term care insurance and eligibility for benefits, the first things that usually come to mind are basic Activities of Daily Living (ADLs)—such as bathing, dressing, or eating. These are the core functions that define independence. But there is another category, called Instrumental Activities of Daily Living (IADLs), which often determine whether a person can truly live independently. One of the most significant IADLs is managing finances. The ability—or inability—to handle money is a crucial marker of someone’s cognitive and functional health, and it has direct implications for long-term care benefits.
What Are IADLs and Why Do They Matter?
Instrumental Activities of Daily Living are the more complex tasks of everyday life. Unlike ADLs, which are basic self-care skills, IADLs require planning, organization, and decision-making. They include tasks such as preparing meals, using transportation, shopping, managing medications, and handling finances.
IADLs provide a more complete picture of how someone is functioning in the real world. A person may be able to dress themselves or feed themselves, but if they cannot pay bills, budget their money, or recognize when they’re being financially exploited, their independence is at risk. For this reason, professionals assessing long-term care needs look closely at IADLs alongside ADLs.
Why Managing Finances Is a Key IADL
Among the IADLs, financial management stands out because of how central it is to maintaining independence and security. Managing finances involves more than just writing a check—it includes keeping track of due dates, balancing a budget, monitoring bank accounts, understanding insurance coverage, and making safe decisions about spending and saving.
When someone begins to struggle with these tasks, it can be an early warning sign of cognitive decline, dementia, or other health issues. For example:
- Forgetting to pay bills or repeatedly overdrawing an account may indicate memory problems.
- Difficulty understanding simple financial concepts may reveal declining executive function.
- Falling victim to scams or fraud may highlight impaired judgment.
These difficulties don’t just create practical financial risks—they signal that an individual may need additional care or oversight.
Connection Between Financial Management and Long-Term Care Needs
The inability to manage money is often one of the first IADLs to deteriorate. That decline frequently occurs before more obvious physical impairments appear. As a result, recognizing financial difficulties early can help families prepare for long-term care needs.
For insurance companies, financial management challenges are also a red flag. While most long-term care insurance policies base benefit eligibility on the inability to perform a certain number of ADLs, cognitive impairment is usually included as a separate trigger. Because managing finances is closely tied to cognition, difficulty in this area often plays a major role in determining when someone qualifies for benefits.
For example, a policy might require that the insured be unable to perform two or more ADLs or suffer from severe cognitive impairment in order to begin receiving benefits. In practice, financial mismanagement is often one of the strongest pieces of evidence used to document cognitive impairment.
Why It Matters for Families and Policyholders
For families, the inability of a loved one to manage money has immediate consequences. Bills may go unpaid, assets can be drained, and financial predators may take advantage of the situation. In addition to the practical harm, this loss of independence can be emotionally difficult, as it represents a clear sign that outside help is needed.
From the perspective of long-term care benefits, understanding how financial management fits into the picture is critical:
- Eligibility Documentation: When applying for benefits, evidence of financial mismanagement can support claims of cognitive decline, which may meet policy requirements for benefit triggers.
- Timing of Benefits: Recognizing problems with financial management early can help families initiate claims sooner, preventing costly delays in accessing benefits.
- Planning for Oversight: Families often need to step in with powers of attorney, trustees, or guardianship arrangements to ensure money is handled safely. This planning dovetails with the care planning required under long-term care insurance.
The Broader Implications
By highlighting financial management as an IADL, professionals and insurers acknowledge that independence is not only about physical capacity but also about the ability to navigate complex, real-world responsibilities. Someone may be physically able to cook or walk, but if they cannot manage their finances, they are at significant risk of losing autonomy and security.
For insurers, this recognition helps them evaluate claims more fairly by taking into account the cognitive dimensions of independence. For families, it underscores the need to monitor not only whether their loved one can handle daily chores but also whether they can safely handle money.
Final Thoughts
Managing finances is more than a matter of paying bills—it is a sophisticated skill that reflects cognitive health, organizational ability, and judgment. As one of the key Instrumental Activities of Daily Living, it serves as both a measure of independence and a predictor of long-term care needs.
For individuals and families, understanding the role of financial management in IADLs is essential for timely planning. For insurers, it provides an important marker in determining when benefits should begin. In both cases, the inability to manage money effectively signals that long-term care support is no longer optional, but necessary.
By appreciating the link between financial management and long-term care benefits, families can be better prepared for the challenges ahead and ensure that their loved ones receive the protection and assistance they need when independence is no longer sustainable.
Protect Your Benefits and Financial Security Today
Contact our ERISA attorneys today to discuss your situation in confidence. We can help you document financial mismanagement, establish the clarity insurers need, and protect both your financial security and access to benefits. Call now or request a complimentary consultation—because getting help early can make all the difference.
