Financial options
What are my financial options in paying for long term care?
There are many ways to pay for long term care; most individuals use a combination
of methods. The sooner you create a financial plan, the better prepared you’ll be
to cover the costs. To start determining your plan, consider all the options and
select those that best fit your needs and abilities.
Won’t health insurance or Medicare take care of this?
Many people wrongly assume that Medicare or their employer-sponsored or individual
health plan will cover the costs of long term care. While those sources may possibly
cover medically necessary care provided in a skilled nursing facility or in the
home, neither method covers ongoing personal or custodial care, including help with
essential daily activities. Medicare and health insurance don’t cover most long
term care because the need for care often develops gradually, rather than as a result
of a hospital stay for a specific medical condition or event.
Doesn’t Medicaid pay for long term care?
Medicaid covers long term care only for those who meet strict state-specific financial
eligibility requirements. In most cases, personal investments and assets must be
exhausted before Medicaid can be accessed. Even when that’s the case, Medicaid covers
services only from a list of approved providers. Because of these limitations, most
people end up relying on personal savings and insurance to pay for long term care.
Can family members provide help with long term care?
If family members are willing and able to devote the time and energy required for
care, their help can greatly reduce costs. But in many cases, an untrained family
member may not be able to provide the level or type of care that is needed. In addition,
caregiving is stressful work that often strains family relationships, and many older
adults prefer not to burden family members. If you plan to have family members help,
be sure to have frank conversations now and on an ongoing basis.
Should I consider long term care insurance?
Long term care insurance may provide a high level of coverage depending upon the
policy benefits but it can get expensive particularly for older adults. As a general
rule, the sooner you enroll, the lower your premiums will be. Most financial planners
recommend long term care insurance for those who own assets of at least $75,000,
not including a car or home; expect to have an annual retirement income of at least
$25,000; or are able to afford premiums even if they increase over time. Existing
health conditions may disqualify you, and a medical screening will be required unless
you sign up for an employer-sponsored plan that may waive medical screening during
a short predefined period of time.
Can my life insurance help?
Some insurance companies offer long term care additional riders for life insurance
policies. Other options may enable you to use your life insurance policy to help
pay for long term care. Accelerated death benefits and viatical settlements (selling
your policy to a third party) provide payments lower than the full value of the
policy, but can make sense for those who are terminally ill or in poor health. A
life settlement essentially sells your life insurance policy for its present value—often
a wise choice for those who no longer need or want a policy.
What other options are available to pay for long term care?
Long term care annuities, the sale of a home, and reverse mortgages are sound funding
options for many.
An annuity is an investment that provides regular payments over a specified period
of time. With a deferred annuity, part of the fund grows, tax-deferred, until it
is needed. This may be a good option for those who want more control over their
taxes. An immediate annuity that guarantees monthly income for the rest of one’s
life may be a good option for those with pre-existing medical conditions that limit
eligibility for other options.
For homeowners over 62 years old who are reluctant to sell, a reverse mortgage is
a type of loan that gradually converts the built-up equity in their home into money.
The payments are tax-free, there are no health requirements, and the loan doesn't
have to be repaid until the owner moves or dies. Heirs can then sell or refinance
the property.
Estimate the costs of long term care
Create
a planning worksheet for funding long term care needs.
Sources: National Clearinghouse for Long-Term Care Information, www.longtermcare.gov; A Shopper’s Guide
to Long-Term Care Insurance, National Association of Insurance Commissioners, 2006.