How Can I Pay for Long-Term Care?
A growing anxiety for many aging Americans is the decision of how they are going to pay for long-term care. Whether you live at home or stay in a nursing facility, the costs of long-term care can be substantial.
The average cost for a private room in a nursing facility is $229 per day. This is an annual cost of $83,585. Even if you plan to live at home, the costs of obtaining assistance from a registered nurse can cost up to $150 an hour.
Additionally, in order to qualify for state assistance from Virginia’s Medicaid program you must first deplete the majority of your own financial assets. The prospect of these high costs leaves many seniors to ask the question, how can I pay for long-term care?
If you are unable to qualify for Medicaid there are three other ways that you can pay for long-term care: purchase a long-term care insurance policy, obtain a reverse mortgage, or sell your life insurance policy.
Long-Term Care Insurance
One way to pay for long-term care is to purchase a long-term care insurance policy. Long-term care insurance policies will help supplement the costs of at home assisted living. Additionally, long-term care insurance policies will cover the costs of hospice care, nursing facilities, and even adult day care.
What are the Advantages of Long-Term Care Insurance?
People who benefit from purchasing long-term care insurance are individuals who own significant financial assets. In the event that you require a long stay in a nursing facility, your financial assets could be completely depleted before you become eligible to receive Virginia Medicaid assistance.
Purchasing long-term care insurance allows you to mitigate the risk of depleting your financial assets to pay for your long-term care. Purchasing a long-term care insurance policy provides you extra security to keep your estate intact.
A long-term care insurance policy allows you to keep possession of your financial assets and allows your estate to pass to your loved ones. So if you have significant financial assets that you wish to pass to your loved ones, then long-term care insurance could be a worthwhile purchase.
What are the Disadvantages of Long-Term Care Insurance?
The main disadvantage of a long-term care insurance policy is the cost. Purchasing a long-term care insurance policy could cost you on average $2,466-per-year.
You could face the possibility of paying 20 years of premiums before you see any benefit from the policy. Unfortunately, there is a good chance you may never see any real benefit from your policy unless you require an extended stay in a nursing facility.
Another way to pay for long-term care is to obtain a reverse mortgage. A reverse mortgage is a tool available to seniors who own their home. If you have a large amount of equity in your home then you may be eligible for a reverse mortgage. A reverse mortgage is a loan against the value of your home.
The loan can be paid to you as a lump sum or through monthly payments. The loan does not have to be paid back until you sell your home. Typically, when you take out a reverse mortgage the amount of the loan would be taken out of the proceeds of the sale of your home.
What are the Advantages of a Reverse Mortgage?
One major advantage of a reverse mortgage is that the risk is placed on the mortgage company. For instance, if the loan that you receive is greater than the amount of the home at the time of its sale, neither you or your loved ones owe the mortgage company anything else. The mortgage company takes the loss and bears the risk.
Additionally, there are few tax consequences associated with reverse mortgages. Because the money from the reverse mortgage is a loan, it is not taxable as income. Finally, some reverse mortgages allow you to borrow anywhere from 40% to 60% of your home’s value.
What are the Disadvantages of a Reverse Mortgage?
While a reverse mortgage can be an effective way to pay for long-term care, this option does have its disadvantages. Unfortunately, a reverse mortgage will tie your home to you until you move out. Because you have to pay back the loan when you leave your home permanently, a reverse mortgage severely limits your ability to move.
Additionally, there are high costs associated with obtaining a reverse mortgage. For instance, reverse mortgages have high initial fees, closing costs, and appraisal fees. Finally, interest compounds when you obtain a reverse mortgage. This means you pay interest on interest during the loan period.
Selling Your Life Insurance Policy
Another way to pay for long term care is to sell your life insurance policy. You may have the option to cash in on your life insurance policy if you are pronounced terminally ill. This means that you have less than two years to live.
Cashing in on your life insurance policy allows you to obtain a large amount of money quickly in order to meet the costs of your long term care. There are two ways to cash out your life insurance policy: you can collect living benefits from your life insurance company or you can sell your policy to a life settlement company.
Collecting Living Benefits
Generally, to be eligible for accelerated or living benefits you have to be announced terminally ill by your treating doctor. If you are terminally ill, some life insurance companies allow you to cash out on your life insurance policy. This would allow you to collect anywhere from 60% to 80% of the face value of your life insurance policy.
If your life insurance company does not allow you to cash out your life insurance policy, then you may be able to obtain a life settlement. If you are over the age of 65, you may be eligible to negotiate a buyout of your policy with a life settlement company.
The negotiations will depend largely your age and health. Generally, the older you are the higher the payout of your policy would be. In exchange for the payment, the life settlement company would then pay the premiums on your policy and become the beneficiary of your policy.
What are the Disadvantages of Selling my Life Insurance Policy?
The primary disadvantage of cashing out your life insurance policy is that your original beneficiary will not obtain any monetary benefits from the policy once you pass. Additionally, if you do cash out your policy you may disqualify yourself from obtaining Virginia’s Medicaid benefits.
Finally, you face the risk of paying high capital gains taxes.
The prospect of having to pay for long-term care can be overwhelming. Purchasing long-term care insurance, obtaining a reverse mortgage, or selling your life insurance policy are all difficult financial choices.
Consulting with an experienced and competent elder law attorney is recommended. Speaking with an experienced attorney will allow you to choose the long-term care strategy that is right for you. Ultimately, having an experienced attorney by your side can best serve to protect your long-term financial needs.