How To Finance Assisted Living: From Savings To Long-Term Care Insurance

As the median cost of assisted living in the U.S. reaches $5,511 per month in 2024, families and seniors often wonder how to manage these expenses without draining their life savings.

The good news is that various financing strategies can help make assisted living more affordable, from using personal savings to tapping into specialized insurance options. Below, we’ll explore practical ways to finance assisted living and weigh the pros and cons of each.

Paying Out of Pocket

Paying out of pocket remains one of the most common ways to cover assisted living costs. These funds typically come from savings, investments, or retirement accounts. One advantage of this approach is its flexibility, allowing individuals to choose any facility without the restrictions imposed by insurance or government programs. Additionally, paying out of pocket avoids debt accumulation, ensuring you won’t worry about interest or loan repayment. For those with substantial financial resources, this method also provides the benefit of retaining complete control over other assets.

However, out-of-pocket payments can rapidly deplete savings, especially given the high monthly costs of assisted living, which average $66,126 annually. This approach can also place a significant financial burden on family members, who may need to step in to help cover expenses if funds run out. It is best suited for seniors with considerable savings or families who can pool resources to share the costs.

Selling a Home

For many seniors, their home represents one of their most significant financial assets. Selling the home can unlock equity to help cover assisted living costs. This approach provides a large lump sum of money covering years of care. It also eliminates ongoing costs associated with homeownership, such as maintenance, property taxes, and utility bills, while simplifying the transition to assisted living by removing the responsibilities of managing a property.

Despite these advantages, selling a home can have emotional consequences. Many seniors have strong attachments to their homes, and leaving behind a familiar environment can be challenging. The financial benefit of selling a home depends on the housing market. Selling during a downturn may not yield enough funds to cover long-term care needs. Suppose the house still has an outstanding mortgage. In that case, any proceeds must first be used to pay off the balance, which may limit the funds available for assisted living. This option works best for seniors who no longer plan to age in place and have significant home equity.

Long-Term Care Insurance

Long-term care insurance (LTCI) is a specialized type of coverage designed to pay for services like assisted living, in-home care, or skilled nursing. It offers comprehensive coverage that can significantly reduce out-of-pocket expenses for care. Many policies are flexible enough to cover assisted living costs and related services, such as memory care or physical therapy. Another advantage is the predictability of costs; premiums are fixed when the policy is purchased, making long-term budgeting easier.

However, long-term care insurance is not without its drawbacks. Policies can be expensive, especially for individuals who purchase them later in life. Eligibility requirements may restrict access, as many policies mandate that the insured require assistance with at least two activities of daily living (ADLs) before coverage kicks in. Furthermore, coverage is not unlimited—most policies have caps on payouts or exclude certain services, leaving some costs uncovered. Long-term care insurance is best suited for individuals who purchased their policies in their 50s or early 60s and planned for potential care needs.

Medicaid and Medicare Support

Medicaid can be a key resource for limited-income seniors, often covering personal care services in assisted living facilities. However, unless specific state waivers apply, Medicaid generally does not cover room and board. Eligibility requirements vary by state, so checking your local Medicaid guidelines is essential. Conversely, Medicare provides minimal support for assisted living, focusing instead on medical services such as therapy and skilled nursing care. While Medicare Advantage plans might offer limited benefits for assisted living, traditional Medicare is not a reliable option for covering these costs.

Veterans Benefits for Assisted Living

Veterans and their families may qualify for financial aid through programs such as the Veterans Aid and Attendance Pension. This benefit provides monthly payments to help cover assisted living costs, provided the individual meets the criteria for military service, financial need, and care requirements. Additionally, veterans enrolled in VA health benefits may qualify for certain services provided within an assisted living facility. Exploring these options early and consulting with a veterans service officer can help you maximize the available resources.

How to Choose the Best Option for You

The best financing strategy for assisted living depends on individual circumstances, including financial resources, long-term care needs, and family support. To make an informed decision, assess your current assets, including savings, investments, and home equity. Consider your long-term care needs, including the potential for escalating costs over time due to inflation or increased care requirements. Consulting financial advisors or elder care specialists can also provide valuable insights into the best approach for your situation.

Conclusion

While the cost of assisted living can seem overwhelming, a well-thought-out financial strategy can ease the burden. Whether you rely on savings, sell a home, or use long-term care insurance, understanding the pros and cons of each approach is crucial. With careful planning and a clear understanding of your resources, you can secure quality care while protecting your financial future.

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