Last Updated: August 17th, 2022



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Guest Post by Lucas Siegel

According to the U.S. Department of Health and Human Services, approximately 70 percent of baby boomers will require some form of long term care services at some point in their life. Whether this applies to you or a loved one, it's important to be prepared. To help you understand what costs you should expect and how you can cover these services, I've compiled a helpful guide on how to afford long term care.

What is long term care?

Long term care refers to a variety of services to help meet a person’s health or personal care needs when they are no longer able to live independently. Long term care may be warranted if an individual is unable to perform the following  six basic activities of daily living safely on their own:

  • Eating — The ability to eat without assistance
  • Bathing — The ability to clean oneself through hygiene activities such as showers, baths, shaving, and brushing teeth
  • Getting dressed — The ability to change clothes without struggling with buttons or zippers
  • Toileting — The ability to get on and off of a toilet without assistance
  • Continence — The ability to control bladder and bowel functions
  • Transferring — The ability to walk independently or move oneself to a mobility aid such as a wheelchair, walker, or scooter

If an individual is unable to perform at least two activities of daily living, the U.S. government considers someone to be chronically ill which may warrant the need for long term care. There are several options available for long term care, including in-home care or assisted living facilities such as a nursing home.

Why is long term care important?

In-home care by family members may be enough for individuals who need minor assistance with daily activities, but people with more complex needs may require support from nurses and other caregivers. In these cases, long term care becomes essential to help the individual overcome daily challenges that arise from their ongoing health condition or disability.

How much does long term care cost?

The cost of long term care will vary by location and the unique needs of the individual, but on average the price is about $4,000 per month with state averages ranging from $2,844 to $9,266 a month. On an annual basis, this means long term care expenses total around $48,000 a year which is substantial for most families or individuals. 

What’s even more concerning, is that the cost of residence in an assisted living facility has increased significantly since 2004. In 2004, the cost of residence in an assisted living facility was only $28,800 compared to the $48,000 in 2019. For those who want additional privacy, the cost of a private room nursing home jumped from $65,185 in 2004 to $102,200 in 2019. While the cost of home care hasn’t skyrocketed, the price has increased in this timeframe and the added costs are notable.

How can I pay for long term care?

The significant cost of long term care presents a challenge to those who will need it. To help you determine the best way to pay for long term care, we’ve provided several popular options:

Savings and investment returns

If you have enough money from savings or investment returns to cover the cost of long term care, that will be your easiest option. However, as of 2020 one third of Baby Boomers currently in, or approaching retirement have less than $25,000 set aside which wouldn’t cover even a single year of care. If you’re young and healthy, start saving early and aim to have at least $1 million by age 65 to cover all retirement expenses including long term care costs.

Long term care insurance

Long term care insurance may also be known as assisted living insurance, but both refer to a policy that is used to cover long term care costs if you end up needing them when you get older. It’s fairly uncommon, with only about 3 percent of Americans utilizing this option due to its high premiums. 

According to Dave Ramsey, the average annual premium for this type of policy is $2,727 per year. This will vary by age and health of the policyholder, but the insurance works by awarding you a daily amount (typically $160 per day) that is used to cover long term care expenses should you ever need them. It’s important to note that there is typically a three-month waiting period from the time you need care until the coverage kicks in, and most insurers usually restrict coverage to between two and five years.

Rent or sell a home

If you have a home but need to move to an assisted living facility or into the home of a family member serving as a caregiver, you may consider renting or selling your house. The large lump sum you receive from selling can go a long way towards covering long term care expenses, but keep in mind you’ll also have to pay closing costs that may diminish your return.

If you’d prefer to hold onto your home but will not be using it, you could also rent it out through popular rental services such as Airbnb or with the help of a property management company. This solution is completely turn-key due to the need for ongoing maintenance, so make sure to set aside a portion of the money you receive to cover these regular costs.

Reverse mortgage

If you’ll be utilizing an in-home caregiver or have a partner who will continue residing in the house after you’ve moved into a long term care facility, a reverse mortgage can be used to cover costs. A reverse mortgage works by having the homeowner borrow money against the home’s value — which is paid back after the owner decides to sell. The downside is that reverse mortgages also come with accumulating interest and fees in addition to the original borrowed amount that must be paid back when you sell.

Sell a life insurance policy

Many people are unaware that they can sell their life insurance policies to cover long term care and other retirement expenses. This is done through a process known as a life settlement. 

Essentially, eligible seniors can work with a life settlement company that specializes in this process to help find a third-party buyer who will purchase the policy and award you with a lump cash sum. Upon completion of the deal, you’ll receive a large cash sum that can be used as you see fit and the third-party will assume all maintenance costs including monthly premiums until the original policyholder passes, at which point they’ll receive the death benefit amount. This is ideal for seniors with financially stable relatives, as it enables them to independently cover long term care expenses without sacrificing assets such as a home or requiring financial assistance from family members.

Life settlements are typically reserved for individuals at least 80 years old, but younger individuals who require long term care may be eligible for a viatical settlement. Viatical settlements are reserved for individuals with a terminal or chronic illness. As noted earlier, the U.S. government considers someone to be chronically ill if they cannot perform two or more activities of daily living — meaning a chronically ill individual who requires long term care may qualify for a viatical settlement.

Lucas Siegel is the founder and CEO of Harbor Life Settlements, a business that helps seniors discover the value of their life insurance policies by educating and connecting policyholders with investors to make life settlements fast, affordable, and transparent.

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