Placing a loved one in a long-term care facility is a hard thing to contemplate. Going there ourselves is even harder. No wonder so many people put off planning for the eventuality. The problem with procrastination is that long-term care is not going to get cheaper. The more we put off financial planning to meet those expenses, the less capital we will have. We could be faced with making some hard choices during a time when emotions cloud our judgement. How can we pay for expensive long-term care facilities?
- Long-Term Care Insurance
The average nursing home stay is one to three years. Medicare pays for the first 100 days. In addition, Medicare will not pay for custodial care, and most nursing home care is custodial. Long-term care insurance is designed to pay for support services including custodial care. It generally covers daily charges up to a specified limit. That limit is based upon your health, the options you choose and the age you are at the time you buy the policy. Long-term care insurance usually covers any type of care from assisted living to skilled nursing.
- Life Insurance
You can use life insurance to pay for long-term care if it allows options such as accelerated death benefits and life settlements. Some policies are combination products that cover long-term care up to a percentage of the policy value.
- Accelerated Death Benefit
This is an option to get a tax-free advance on your death benefit to pay for nursing home care. If it is not included in your policy as a standard feature, you may have to pay an additional premium to have it added. There are some criteria you may have to meet. These include being terminally ill, receiving a life-threatening diagnosis, being in need of long-term care for an extended period or needing assistance with activities of daily living such as grooming and bathing. Approval for long-term care insurance usually involves a health screening. Using the ADB feature allows you to reap the benefits from your life insurance without passing a health examination. It may, however, affect your Medicaid eligibility.
- Life Settlements
If you no longer need your life insurance policy, or you want to use its benefits to pay for medical or other expenses, you can sell your policy through a Life Settlement for its current value. You can use the money for any purpose, but there is sometimes an age window for eligibility. In addition, the sale may be taxed.
- Viatical Settlements
These instruments involve selling your policy too, but only under certain conditions. You must usually be terminally ill and be expected to live two years or less. If you elect to use your insurance this way, it will not pay death benefits to your heirs. The amount of money you may get for a Viatical Settlement varies according to your life expectancy. The company buying the policy becomes your heir and receives the full benefit after your death. That means you and the company both benefit. Unlike the Life Settlement, the Viatical Settlement proceeds are not taxed.
If you need skilled nursing or rehabilitation care, Medicare will pay for up to 100 days in a long-term care facility. Most people in nursing homes who are eligible for Medicare pay stay only 22 days.
Medicaid does pay for custodial and long-term care. It operates on federal guidelines, but allows the states to set some guidelines and limitations. For instance, the federal government requires the states to cover certain populations, but allows them to add other groups. The state must also cover specified services, but can cover others as well. Because of this, Medicaid varies by state. In general though, it is a program for people with limited income and resources. If you want to use Medicaid to pay for your long-term care, you may not have income or assets that exceed the limits set by your state.
An estimated 40 percent of Americans will need long-term care. Paying for that care can put added stress on families at a time when they are already overwhelmed. If you would like to create your own plan to finance long-term care, or if you need funds to pay for care you are already receiving, contact us. We understand your worries and we can help you find a financial plan that is right for you.