5 ways to pay for long-term care expenses

By Lucas Siegel
CEO and Founder of Harbor Life Settlements

healthcare long term care senior

(©auremar – stock.adobe.com)

Approximately 10,000 baby boomers are expected to turn 65 every day from now until 2030 according to a government census. Of these individuals, data suggests 69% will need some form of long-term care and 37% will need care in an assisted living or nursing facility.

With this in mind, it’s important to have an idea of the costs you may need to pay for yourself or your loved ones. Furthermore, you should also put together a plan on how you’ll pay for these expenses, which are higher than you might realize. To help, we’ve compiled this comprehensive guide on everything you’ll need to know about paying for long-term care expenses.

What is long-term care, and when is it needed?

When an individual is no longer able to live independently without assistance from others, long-term care provides a variety of personal care services. So when do you need long-term care? A person may require long-term care if they can no longer perform at least two of the following six activities of daily living (ADLs) on their own:

  • Eating: The ability to feed oneself without assistance
  • Bathing: The ability to perform hygiene activities such as showering, bathing, shaving, and brushing teeth
  • Getting dressed: The ability to dress and undress without struggling with buttons, zippers, or laces
  • Toileting: The ability to independently get on and off of a toilet
  • Continence: The ability to control bladder and bowel functions
  • Transferring: The ability to walk or independently move to a mobility aid such as a wheelchair, walker, or scooter

While there are other tasks that are important for living independently, these are the six fundamental ADLs that are required on a daily basis. An inability to independently perform at least two of these daily activities will result in a person being classified as chronically ill, which may warrant the need for long-term care.

How much does long-term care cost?

The national average cost of residence in an assisted living facility is about $4,000 a month with state averages ranging between $2,844 to $9,266. Essentially, this means you should expect long-term care to cost about $48,000 a year per individual. It’s important to note that this number represents 2019 data, but the price is expected to go up in the coming years. In fact, the same care cost $28,800 in 2004, showing a 68% increase in the past 15 years. For many, these costs are simply overwhelming which is why it’s important to start planning early.

How to pay for long-term care expenses

Although the cost of long-term care is higher than many realize, they also likely have options they aren’t aware of that can help them help pay for these costs. Below, we’ve detailed some of the best ways to pay for long-term care:

1. Use retirement savings/investment earnings

If paying out of pocket is an option through retirement savings or investment earnings, then that will be your easiest option. Unfortunately, the average baby boomer has less than $100,000 which will only cover about two years of long-term care expenses. Furthermore, using all of your retirement savings to cover long-term care expenses is dangerous, as you may have other expenses that come up later in retirement.

2. Rent or sell a home

If you or a loved one with a home is moving into a long-term care facility, then you may consider renting or selling your home to help cover these expenses. Keep in mind that selling your home means you’ll also have to account for closing costs, which may reduce its value. If you instead decide to rent it out, then you’ll likely need to pay a fee to the renting service or property management company you utilize in addition to regular maintenance fees and property taxes.

3. Take a reverse mortgage on a home

You may not actually need to go to a nursing home or assisted living facility to receive long-term care services, in which case you’ll likely still want to live at home. In-home nurses and caretakers are still expensive, so how will you pay for these costs? A reverse mortgage is an option that you might not know about, in which you borrow money against the value of your home that is eventually paid back when you decide to sell. Essentially, you could live in your home and use a reverse mortgage to pay for long-term care during the remainder of your life, then the money will be paid back when the home is sold upon your passing. However, you should also know that reverse mortgages usually come with interest and fees that accumulate on top of the original borrowed amount.

4. Get a long-term care insurance plan

Only about 3% of Americans have long-term care insurance, which covers the cost of long-term care if you need it at some point in life. So why aren’t more people utilizing long-term care insurance? First and foremost, the premiums are fairly high with an average cost of $2,700 annually according to AARP. Couples may be eligible for around a 30% discount, but that’s still too expensive for many people. Furthermore, these policies also typically have a three month waiting period until coverage kicks in, and a lot of insurers restrict coverage to between two and five years of care. As a result, many people will look for alternative methods to pay for long-term care expenses.

5. Sell a life insurance policy

Few people realize that the life insurance policy they put money into throughout their life is an asset that can be sold and used to cover retirement or long-term care expenses. If eligibility requirements are met (age, type of policy, etc…) then you may be able to sell your life insurance for a lump cash sum through a process known as a life settlement.

Basically, you can connect with a life settlement company that will help you determine if you qualify for a life settlement and how much your policy is worth. To preemptively get an idea of how much your policy is worth, you can check out this life settlement calculator from Harbor Life Settlements, which provides additional insight on the factors that contribute to the value of your life insurance policy. It’s also important to note that even if you don’t qualify for a life settlement, you may be eligible for a viatical settlement which is similar, but generally offers a higher payout and is reserved for individuals who are terminally ill or at least 80 years old.

If you decide to sell, the life settlement company will find a suitable buyer for the policy (banks or investors) and arrange a deal in which you receive a large cash sum and the third-party buyer receives the death benefit upon your eventual passing. The money you receive can be used as you see fit to cover long-term care expenses or simply make the most of your golden years. Additionally, you will no longer be responsible for any maintenance fees including monthly insurance premiums.

This option is ideal for individuals with financially stable children, as it enables them to cover long-term care expenses without sacrificing your home or requiring assistance from relatives.


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