Ways to pay for long-term care expenses

VaselineSeptember 9, 2024

0 3 minutes read

A few years ago, when I was helping care for my parents towards the end of their lives, they were adamant that they wanted to stay in their home as long as possible. I quickly realized that we would need a lot of help to honor their wishes. Finding quality and reliable long-term home care was expensive, but luckily they had the resources to pay for it.

Having witnessed how important it was for my parents to stay at home, I encourage clients to plan for long-term care expenses as many of us live longer and need specialized care more often. It is estimated that half of all Americans age 65 and older will need long-term care in facilities.

Today, long-term care costs have continued to rise. According to the 2023 Genworth Cost of Care Survey, the average annual cost for a private room in a nursing home is $116,800. Fortunately, the options to help pay for these expenses have also expanded. The earlier you start planning, the more control you have over your future, empowering you to make informed decisions and feeling more secure. Here are some options to help pay for these costs:

Subscribe to Kiplinger’s Personal Finance

Be a smarter, more informed investor.

Save up to 74%

Sign up for Kiplinger’s free e-newsletters

Profit and prosper with the best expert advice on investments, taxes, retirement, personal finance and more – straight to your email address.

Profit and prosper with the best expert advice – straight to your email address.

Cash reserves

Similar to saving for college costs, you can estimate future costs and what you need to save each month. Although self-financing is possible, it is prohibitive. You will need significant savings to cover potential long-term care costs.

Long-term care insurance

This is a more favorable option than self-financing. Long-term care insurance provides financial security for long-term care costs. Similar to car or home insurance, you pay a premium on a regular basis. While there is no return if you don’t use the insurance, the peace of mind it provides may outweigh the cost.

Hybrid cash value life insurance

This form of permanent life insurance includes a savings component. Over time, savings can add up, and most policies allow you to add a long-term care plan. This subscription provides a monthly benefit that is a percentage of the death benefit. For example, a $500,000 death benefit policy could provide a monthly income benefit of $10,000 for 50 months.

This option is advantageous because it combines long-term care benefits with potential life insurance income for your loved ones. Note that you must qualify for life insurance to take advantage of this option.

Asset-based long-term care annuity

For a flat premium, this annuity provides a monthly long-term care benefit for a specified number of months. If you don’t use the long-term care benefit, these annuities can also provide a death benefit. This type of annuity product can be better than long-term care and life insurance options because, in most cases, you are accepted based on minimum qualifications.

Qualifications will depend on the life insurance company sponsoring the product. This means you can receive long-term care benefits while also having a potential death benefit for your loved ones.

The Kiplinger Advisor Collective is the leading criteria-based professional organization for personal finance advisors, managers and directors. Learn more >

Annuity with fixed index

Some fixed index annuities offer long-term care income benefits. These annuities typically have minimum product qualifications and require a lump sum premium. It could be a good alternative if you can’t qualify for insurance or an asset-based annuity.

Equity line of credit

This can be a good option for financing long-term care costs if you have enough equity in your home and can make the necessary monthly payments.

Reverse mortgage

This can be better than a home equity line of credit because you don’t have to make loan payments over your lifetime. However, upfront and ongoing costs are usually more expensive than a home equity line of credit.

Sale of an asset

This is how my parents financed their long-term care costs. This can be real estate, an investment account, etc. It can be an effective way of financing expenses; however, you must have assets set aside to finance this cost.

I’m selling your house

In some cases, selling your home and moving into a care facility could be a way to cover potential long-term costs. This can be a good option if you are comfortable with the idea of moving into a care facility rather than receiving care at home. However, it is important to consider the emotional impact of leaving home. For couples, selling your home may not be feasible unless it can both fund a care facility and cover the costs of alternative housing for the other spouse.

The above list is not all-inclusive. Insurance can be the best way to maximize your long-term care benefit and get the most value at the lowest cost. However, it is essential that you speak with a financial planner who can help you determine the best way to cover these potential expenses based on your circumstances.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice regarding your specific situation.

VaselineSeptember 9, 2024

0 3 minutes read

Vaseline

Related Articles

Baltimore releases details of $45 million opioid litigation settlement with Walgreens

Guidewire Software (NYSE:GWRE) had its price target raised to $180.00 at Royal Bank of Canada

S&P gets a makeover in September: What is…

CoreCap Advisors LLC invests $403,000 in The Trade Desk, Inc. (NASDAQ:TTD)