As you're weighing senior care options for your loved one, cost is likely a top factor. The good news? Depending on what care your loved one needs, assisted living can be much more affordable than nursing home care or long-term in-home care. Assisted living rents vary, but you can generally expect to pay $2,000 to $5,000 per month (compared to $5,000 to $10,000 and up for nursing homes). If your loved one doesn't need close medical supervision, assisted living might be your best bet, financially speaking.
But how will you pay for assisted living? Explore eight creative ways to afford assisted living that you haven't thought of yet.
Important note: Medicare won't pay for assisted living beyond short-term rehabilitation.
If your loved one (or your loved one's spouse) was a veteran, you're in luck when it comes to residential care. Veterans benefits can be used to pay for residential care in a variety of situations. One set of benefits is available to those with service-related injuries or disabilities; another set of benefits, known as Aid and Attendance, is available to any veteran or surviving spouse who's disabled and whose income is below a certain limit. To qualify for and access these benefits, you'll need to go through the Veterans Administration, which can be a tricky and time-consuming process. It's extremely helpful to work with a geriatric planner who knows the ins and outs of the system. Many senior living communities offer a financial concierge service that can include guiding you through the process of qualifying for benefits.
Another option is to work directly with services such as Elderlife Financial, which works with assisted living and continuous care retirement communities (CCRCs) to provide this concierge service. Elderlife Financial connects you with its network of veterans benefits experts, who can help obtain the maximum benefits your loved one is entitled to.
If your loved one has a life insurance policy, he probably purchased it long ago, thinking to provide support to his family after his death. But a life insurance policy can also provide financial support now, if that's when the money would be most helpful. To cash out a policy, ask your life insurance company about "accelerated" or "living" benefits. Commonly, the company that originally issued the policy buys it back for 50 to 75 percent of its face value. The amount is decided based on the policy amount and monthly premiums as well as the policyholder's age and health. Different rules may apply depending on the company and type of policy. For example, some policies can only be cashed in if the policyholder is terminally ill; others are much more flexible.
If the company that issued the policy won't cash it in, don't worry. Your loved one can also sell the policy to a third-party company in return for a "life settlement" or "senior settlement," which is usually a lump sum of 50 to 75 percent of the policy's face value. After buying the policy, the settlement company pays the premiums until the policyholder dies, at which point the company, rather than the policy's original beneficiaries, receives the benefits. Another option, known as a "life assurance" benefit or life insurance conversion program, allows seniors to convert the benefit of a life insurance policy directly into long-term care payments. Life insurance conversion typically pays between 15 and 50 percent of the value of the policy -- less than a life settlement -- but is available for lesser-value policies that might not qualify for life settlement.
If you or your loved one bought care insurance, you're one of the lucky ones. Long-term care insurance policies apply to assisted living care; all you need to know is how to collect on it. Some long-term care policies have a specific designated benefit for nursing home care, based on a mental or physical diagnosis, which can be used to pay for assisted living. Or the policy may set a designated payment for home care, which can be paid directly to the assisted living facility or to the beneficiary, who then uses it to pay for assisted living.
One more thing: If your loved one didn't buy long-term care insurance, it's probably too late now to consider this option. But there is time to sign up for a long-term care policy yourself, so you don't put your own family in the same pickle in the future.
If you have a nest egg but you're concerned about outliving your resources, an annuity may be a good option. When you purchase an annuity, you pay a lump sum up front -- and receive regular payments back over a promised period of time, usually the rest of your life. An annuity can help you stretch your budget and be sure that you'll always have at least some money coming in even if you live longer than you expect.
The big benefit of annuities is that you continue to receive money regularly, even if your purchase premium runs out. If you live a really long time, you get more back than you put in. The underwriter takes the risk that you might live longer than the money lasts -- and makes an extra profit if you die early. Underwriters don't go into the annuity business expecting to lose money, but annuities can still be a better deal for you than just consuming your money year by year.
Another benefit is that annuities aren't fully counted as assets by Medicaid when you apply for government assistance. The income from the annuity is counted as a "resource," but the much larger sum originally used to purchase the annuity is not.
Annuities are complex financial tools. There are many variations. Some you buy now to get future payments, others deliver immediate payments; some are based on a fixed interest rate, others work off variable rates. You'll want to do some homework and talk to a trusted financial adviser about what annuity options might be appropriate for your situation.
Be very cautious when investing in annuities. There are unscrupulous marketing schemes pushing phony annuity deals that target vulnerable seniors through community centers, adult education seminars, telemarketing, and slanted advertising. And outright annuity fraud is more common than most people realize. Always use your common sense filter: If it sounds too good to be true, it might be a scam. You'll want to choose a reputable company when you buy an annuity, and work with a representative who comes highly recommended. And make sure your representative helps you think through some of the trickier details, like inflation.
If your loved ones own their home outright or have only a small mortgage on it, a reverse mortgage might be just the solution you're looking for.
A reverse mortgage allows you to cash out the value of your home equity, either in a lump sum or in a series of monthly payments. The bank decides on a value based on what the home is worth, interest rates, the applicant's age, and other factors, and the loan balance gradually increases over time. (If a bank holds a mortgage on the house, it has to be paid back before you can begin receiving payments.) The borrower can stay in the home until death, even if the loan balance exceeds the home's worth. Upon death, the loan balance must be repaid, which usually means selling the home.
Reverse mortgages were originally developed to help widows remain in their homes after the breadwinner passed away. Today they work best when one parent needs assisted living but the other can remain in the home. To apply for a reverse mortgage, one homeowner must be over the age of 62, and one person must continue to live in the home.
Be sure to do your homework about the pros and cons of reverse mortgages -- they aren't for everyone. For example, it's probably not a great choice for a beloved property that you want to keep in the family.
Finally, a reverse mortgage is a big commitment, so it's important to work with a reputable company. Make sure you understand the terms and read the fine print, as there are many rules about homeowners' insurance and mortgage insurance and keeping the property well maintained. There may also be high fees involved, or clauses that make it easy to lose the home. The Consumer Financial Protection Bureau recently reported that reverse mortgage scams and foreclosures are on the rise.
If only one parent is still living, or if both parents need assistance with daily living, the family home can be an important resource. Selling is an option, of course. But in many families, Mom and Dad's house is cherished and family members aren't ready to make this decision. In this case, consider renting out the house and using the rental income to pay for assisted living. The idea of being a landlord might seem scary, but for a percentage fee you can hire a service to manage the property for you.
If you don't have much in the way of savings or other financial assets and your income is low, you may qualify for government assistance to pay for long-term care.
Start with Medicaid, which is run as a partnership between the states and the federal government. In many states the programs go by another name, so look up the name of your state's program online or in the government pages of your phone book (example: Arizona Long-Term Care System). Medicaid eligibility is different from state to state, but typically you must have less than $2,000 in assets, in addition to your home and your car, in order to qualify.
Only some assisted living communities will accept Medicaid, and Medicaid beds are usually limited. To find long-term residential care options near you, check with your local Area Agency on Aging. To help you navigate the maze of signing up for public benefits, you can also call for a free consultation from a Government Health Insurance Counselor.
Important note: Beware of trying to qualify for Medicaid by "gifting" money and other assets to adult children or other family members, also known as "Medicaid spend-down." This once-popular strategy isn't as easy as it sounds and can backfire badly. The government has become increasingly strict about Medicaid qualification and has the right to do a "look-back," going over your financial transactions for the past five years. Any gifts of money or assets made during this time are counted as resources, including assets put into an irrevocable trust. If you're caught trying to spend down your resources to qualify for Medicaid, the penalties are steep -- including disqualification from receiving Medicaid for a lengthy period of time.
If you have a disability, another option is supplemental Social Security income (SSI). Also administered by the state, SSI is part of the governmental safety net for those who are impoverished and partially or totally disabled by illness or injury. SSI comes in the form of monthly payments, which you could use to pay for nursing home care or assisted living. To qualify for SSI, contact your state disability department. You'll need to document your financial status and you'll also need a doctor to certify that you can't work because of a medical disability.
If you're worried about Mom or Dad living alone, other family members may be worried, too. Getting everyone together to talk about it sometimes makes it possible to find a solution, such as pooling assets and trading money for time. For example, if one or two siblings or family members handle the brunt of daily care, such as driving to medical appointments, others with less flexible work schedules might contribute money instead. Or if there's a family home that no one wants to sell yet, siblings with available funds might pay for assisted living with the promise of repayment when the house is sold.
The research and paperwork associated with finding and choosing among assisted living facilities and qualifying for financial support is a big job. Sometimes families get stuck because no one feels qualified to take on the task. It can be a huge relief to work with a geriatric care manager or senior move manager who knows the resources in your area. A care manager can work with the entire family to present options, resolve roadblocks, and help you find the perfect situation for your loved one.
Money matters can also bring up family tensions. If you're having trouble communicating about this challenging topic, learn more about how to handle family conflicts. You might also enlist the help of a mediator.
If your loved one doesn't have a lot of free cash or financial assets that are easily liquidated, the answer might be a bridge loan, a relatively new option developed by Elderlife Financial. Bridge loans are short-term loans of up to $50,000 designed specifically to provide the funds for a move to assisted living or a continuing care retirement community (CCRC). They come in two types. The first type is an unsecured (no collateral required) line of credit intended to finance the first months of living expenses while seniors sell their home, obtain veterans benefits, or take other actions to free up funds.
Interest rates for these lines of credit range from 8.25 to 12.5 percent, so this option is best used when the time to payback is relatively short. (Borrowers have up to five years to repay, but most repay the loans within a year, according to the company.)
The second type, called the Capital Access Program, is a lower-interest, lump-sum loan secured by real estate or another asset that the company recently introduced. It's designed to help seniors come up with the large up-front entrance fee typically required for a CCRC.
Seniors (or other family members) qualify for both types of loans based on the usual criteria, such as credit score, credit history, and debt-to-income ratio. The senior or an adult child can be the borrower, and up to six family members can cosign the loan application. Of course, as with any loan, cosigners are liable if the borrower runs into trouble with repayment. In many cases, payments can be made directly to the CCRC for convenience.
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