How to Pay for Long Term Care Costs

Jun 29, 2010
Carol Finch

Ways to Fund the Costs of Long Term Care - Photo by owaisk_4u

Long term care costs should be considered as part of the retirement planning process. There are various ways to pay for long term care. What are they?

Those that are in the process of planning their retirement may want to take some time to consider whether they could cope with long term care costs. Although some may never need to pay for this kind of health care at all, some will and it can work out to be expensive. How do consumers pay for long term care?

Will Medicare and Medicaid Cover Long Term Care Costs?

It isn't necessarily wise to rely on Medicare or Medicaid here. Generally, these plans will not cover all of the essential long term care costs that may be incurred by an individual, although some related expenses may be paid for.

Medicare, for example, may help with the costs of home health care and nursing but only under certain conditions. It won't cover daily living activities that the individual may need help with such as eating, dressing and bathing. Medicaid may pay for more long term care services but this will generally only to apply to those on low incomes with limited assets.

Is Long Term Care Insurance an Option?

Some will turn to long term care insurance, either on a full or limited basis, to help cover these expenses. These policies are designed to give coverage to help individuals get the care services they need in the home, in the community or in a nursing home/facility, depending on their preference and the type of plan they choose.

Using Life and Viatical Settlements to Pay for Long Term Care

Life and viatical settlements may be an alternative solution for some. Both of these options involve selling a life insurance policy for cash. Viatical settlements are, however, made when the policyholder is terminally or chronically ill. This may, in certain circumstances, raise enough money to pay for the long term care that is needed.

Longevity Insurance May Pay for Long Term Care Later in Life

Some consumers will take out longevity insurance to create an income later in life. This may suit those that are worried about outliving their retirement savings or that want to provide for long term care costs as they get older. Longevity annuities typically pay an income once the individual reaches a pre-defined age (i.e. over 80) so may suit those that feel that they will most need cash later in retirement.

Using Annuities to Fund the Costs of Long Term Care

Some will use their general savings/investments to pay for long term care and may, for example, put annuities in place to create a regular income/lump sum payment. Some products also come with a long term care/nursing home rider built-in which may be helpful. It may also be possible to use some deferred annuities to fund the cost of purchasing a long term care insurance policy.

Life Insurance With an Accelerated Death Benefit

Some life insurance policies will offer the option of an Accelerated Death Benefit. This may allow the policyholder to use cash advances from their coverage in certain situations. With long term care this could, for example, be used if the policyholder is terminally ill, needs to move into a nursing home on a permanent basis or is no longer able to perform certain "acts of daily living."

Reverse Mortgages Could Release Equity to Pay for Long Term Care Costs

Those with no specific savings, insurance or investment plans to call on could consider releasing equity in their home via a reverse mortgage loan. This may fund long term care costs for some although the loan given may need to be repaid if the individual is no longer able to live in their home at some point in the future.

These options may be worth considering during the retirement planning process. They may, in certain circumstances, help fund the costs of long term care and some may also bring other benefits that could be useful. Readers looking to learn more about any/all of these solutions may find the following articles of interest:

Source: Medicare: Long-Term Care