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Funding Long-term Care: A Look at Sources

Worrying about how to pay for Long-Term Care (LTC) can cause many sleepless nights, but there are more ways to fund LTC then you might know. Rather than lose sleep, take a look at all the options for funding LTC — from the obvious to the often overlooked.

Personal assets

Personal assets are a primary source for funding LTC including:

  • Savings
  • Investments (e.g. stocks and bonds)
  • Pensions, annuities and retirement accounts (i.e. 401(k), 403(b), individual retirement accounts),
  • Precious items that can be liquidated (e.g. fine art, jewelry, antiques)

If you choose to continue working full or part time, like many seniors, the additional funds can increase your savings to fund LTC.

LTC insurance

LTC insurance can be a great resource. Depending upon the coverage amount you choose in the beginning and the limits and caps of that coverage, funding LTC is often easily managed without having to dip into your assets. However, it’s important to understand the policy and what to expect when funding LTC.

Learn more about long-term care insurance from the U.S. Department of Health and Human Services.

Home equity

If you own a home, your home’s equity can be used to fund LTC. Selling a home provides instant access to money that can be immediately applied to LTC or invested until the need arises.

If you need LTC while the sale of a home is in progress, a bridge loan can provide quick access to funds, but it must be repaid.

A home equity loan, home equity line of credit and reverse mortgage are other options. Each has pros and cons to be considered, as explained in Forbes’ Four Ways to Use Home Equity in Your Retirement Plan.

Social Security benefits

The longer you wait to receive Social Security, the more money you will receive each month. Essentially considered income, Social Security benefits can be used for funding any type of senior care, including independent living.

Receiving Social Security as early as possible and continuing to work will result in wage limits until you reach your full retirement age. Get all the facts from the Social Security Administrations’ guide, Understanding the Benefits.

Medicare and Medicaid

Medicare cannot be used for funding senior care, including LTC, which is generally considered “custodial care.” Medicare is only intended to cover medical care (e.g. a hospital stay or skilled nursing facility stay following a qualifying hospital stay). Understand all the conditions that apply from Medicare’s What Part A Covers.

If you have limited assets and a low income, you may qualify for Medicaid. The program helps pay for LTC and is the largest payer for LTC nationwide.

Life insurance

Most people take out life insurance policies to provide for their families, but once kids are grown and on their own, the policy may offer money that can be used to fund LTC. While the first thought might be to cash out the policy, there are other options including:

  • Policy conversion
  • LTC riders
  • Policies that combine life and LTC insurance

Learn more from The Balance’s Can You Use Life Insurance to Pay for Long-term Care? and HHS’ Using Life Insurance to Pay for Long-term Care.

Veterans benefits

If you are a veteran who qualifies for the VA pension, you and your survivors have two benefit options that may help to fund LTC – Aid and Attendance and Housebound Benefits programs. If you have not yet applied for a VA pension, you may do so at any time. When approved, you may receive benefits retroactively. Learn more from the U.S. Department of Veterans Affairs VA Nursing Homes, Assisted Living and Home Health Care.

According to the HHS, recent research suggests that most Americans turning age 65 will need LTC services at some point in their lives. Planning, including assessing your finances and assets, is critical. LTC cost can be significant, which is why it’s important to understand all your funding options.