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5 Options for Long-Term Care Financing

You may think it’s far into the future, but it’s never too early to begin considering options for long-term care financing. The cost of long-term care can be astronomical, so the sooner you start planning, the better. 

What is long-term care? Long-term care refers to a variety of services used to help with activities of daily living or ADLs. This could mean bathing, dressing, eating, or moving around. Long-term can be provided in your home, a skilled nursing facility, or an assisted living home. All of these are expensive and can quickly drain any savings and retirement accounts you worked hard to build.

Many people are surprised to find out that the federal Medicare program does not include long-term care in their covered benefits. Medicare may help with some of the services you receive while undergoing long-term care (like doctor’s visits and prescriptions), but it won’t pay for any room and board or other services that help with ADLs. So, what are your options for long-term care financing? You’ve got five options to consider.

1. Long-Term Care Insurance

Probably your best option is to enroll in long-term health care insurance. These policies offer a variety of benefit levels. For example, you can choose a policy that reimburses you up to $10,000 per month for three years. Once your doctor has verified you need assistance with at least two activities of daily living, you are eligible to receive reimbursements. (Please note that your policy may have an elimination period.)

The downside to insurance for long-term care is the monthly premium. Unless you enroll in a policy when you are young (think 20s and 30s), you’ll likely be met with a premium of several hundred dollars. Premium amounts will vary based on your age, gender, and how much coverage you want. In addition, long-term care insurance plans have medical underwriting requirements. You’ll need to be relatively healthy to be approved for a policy.

2. Life Insurance with a Long-Term Care Rider

Most life insurance policies allow you to add on riders. One popular rider is long-term care coverage. Of course, this will come at an extra cost but may be cheaper than purchasing a separate long-term care insurance plan.

Riders for long-term care are also referred to as accelerated death benefits. In this case, if you need long-term care, you can draw on the death benefit while you are still alive and receiving care.

long-term care planning with calculator

3. Health Savings Accounts

If you were ever enrolled in a high-deductible health plan, you may have also had a Health Savings Account (HSA). An HSA allows policyholders to deposit tax-free funds into the account. You can keep the funds as cash or invest funds within the HSA. Your investments grow tax-free. You can then use the funds on medically-approved services, including long-term care. 

An HSA is one of the first sources of savings that people use when they move into retirement. Since you get to enjoy triple the tax savings, they’re a great investment vehicle to help take care of your medical costs as you age.

4. Annuities

Annuities are a type of life insurance policy that allows you to withdraw predictable amounts from your investments. There are several different types of annuities, some with guaranteed returns and some without. 

For example, you may purchase a $50,000 annuity. The carrier will invest that money and hold onto your funds for a certain amount of time. Once the agreed-upon time has been met - let’s say five years - you then get payouts from that account. You can use the money however you see fit.

5. Medicaid

Medicaid is a federal program for certain groups of people: those who are low-income, disabled, elderly, or pregnant. While it is a federal program, each state runs its own Medicaid program. Therefore, the eligibility requirements may vary from one state to the next.

If you are eligible for Medicaid, it may help pay for certain types of long-term care. Be careful not to rely on this form of financing as the eligibility requirements are stringent and can change from year to year.

Long-term care will have a significant impact on your finances. It’s hard to think about these things before we need them, but by spending just a little time planning for long-term care, you’ll have peace of mind knowing your future has been provided for. Call your local agent at Local Medicare Specialists to get a long-term care insurance quote today.

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