Alternatives to long-term care insurance

Long-term care insurance can cover the cost of assisted living and other medical expenses, but it isn't affordable for everyone.


Jeanne Lee

Jeanne Lee

Contributing Writer

Jeanne Lee is a freelance journalist with 16 years of experience writing about personal finance and small business. Her work has appeared in Fortune, Money, Fortune Small Business, and Financial Planning, among others.

Published April 17, 2020|7 min read

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If you’re shocked by the high price of long-term care insurance, what can you do instead to plan for the care you might need later in life? You may need help with personal daily tasks including bathing, dressing, getting out of bed and more, delivered at home, in an assisted living facility or nursing home, and those expenses could cost tens of thousands of dollars per month. Long-term care insurance is meant to cover those costs.

Premiums for traditional long-term care policies run $2,050 annually for a man aged 55 and $2,700 for a woman aged 55, according to the American Association for Long-Term Care Insurance (AALTCI), while married couples typically pay $3,050 a year.

Perhaps because of these high costs, only 32% of older, middle-income people actually have a plan for long-term care, should they need it, according to a 2019 Bankers Life study. But long-term care insurance is just one solution to a complex problem. Here’s a look at an array of alternative strategies, each with their own pros and cons.

Key Takeaways

  • Long-term care insurance covers expenses like paying for an assisted living facility that can be very expensive to pay out of pocket

  • Long-term care insurance can itself be very expensive, so many people may choose an alternative to pay for their long-term care

  • Some of alternatives to long-term care insurance include remodeling your home or tapping into your home equity

  • Other alternatives to long-term care insurance may be dependent on your eligiblity, such as applying for Medicaid

Combo policies

Many people prefer policies that are a combination of life insurance and LTC insurance, as opposed to traditional, standalone LTC insurance. That’s because traditional policies carry the very real risk of never paying out anything if you end up not requiring long-term care during your lifetime. With a combo policy, if you need long-term care, you can tap a portion of the policy’s death benefit to pay for it. If you don’t use up all the value during your lifetime, your survivors will get a payout when you die.

However, that flexibility doesn’t come cheap. Combo policies are only available with whole life insurance, not term. Term life is the more affordable type of life insurance, while whole life insurance is a pricier type of policy that is generally used by high-income families. Policies that combine LTC coverage with whole life insurance are complicated and come with added fees.

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Additionally, combo policies may offer less coverage than standalone long-term care insurance plans because you’re also paying for the death benefit.

That leaves a lot of middle-income people back right where they started — lacking coverage for long-term care.

Home equity

Could your home equity pay for long-term care? Many people may consider taking out a home equity loan or a home equity line of credit to pay for needed long-term care expenses. Others may want to sell their home and the proceeds for their care.

But this solution may not work for everyone. Consider whether you’ll need to tap home equity for other retirement expenses. If you sell your house, will you downsize to a smaller home or move in with the kids? Will there be enough equity to pay for nursing-home or assisted-living costs?

Suppose your house sells for $250,000. Would that cover your (or both spouses’) needs throughout their lifetimes? Care costs vary according to health and the type of care that’s required, so it’s good to have contingency plans.

Aging in place

Another way to utilize your home is to outfit it for maximum accessibility, so you can live there longer even if you lose some mobility. Compared to nursing homes and assisted living facilities, staying put in your home can be less costly, even if you hire in-home help as needed. Besides, most people prefer the idea of growing old in familiar surroundings rather than moving to a facility. But how well would the physical environment of your homework?

Does your home have steep stairs, a cramped kitchen or narrow hallways that would obstruct a wheelchair? Preparing for aging in place can mean embracing “universal design.” This architectural term refers to designing homes to be safe and comfortable for all people, young or old. That can mean lowering some kitchen counter heights, reducing level changes or adding ramps and grab bars where possible.

Incorporating universal design principles in your home could help you stay in your own home for a few years longer or avoid nursing homes or assisted living facilities altogether. The way to do it cost-effectively is to consider it whenever you tackle remodeling projects, even if retirement is years away. If you’re redoing your kitchen or bathroom, consider it an opportunity to widen doorways or lower light switches. Maybe you can eliminate steps or figure out where a chair lift can be added later.

The idea is to make incremental changes over time, so you won’t have to retrofit your house for accessibility once you’re in your 70s or 80s.

Reverse mortgage

Another option is a reverse mortgage, a special type of home equity loan available to homeowners age 62 and over, that can provide funds to pay for in-home care or other purposes. You can still live in the home and don’t need to repay the loan as long as you’re living there.

To apply for one, you’ll need to meet with a reverse mortgage counselor to see whether it’s suitable, but reverse mortgages generally don’t require you to meet income or credit requirements. Once you’re approved, you can get the money as a lump sum, a monthly payment, or a line of credit.

Note that you’ll have to pay closing costs, which could be unaffordable for some people. These closing costs include loan origination and servicing fees. If you have other debts secured on your home, you’ll have to pay them off. Otherwise, there are no restrictions on how you spend the money.

However, if you use it within the month you receive it, it is not taxable and does not count toward income or affect government benefits, including Medicaid eligibility.

The loan only has to be paid back after you, or the last co-borrower, dies or permanently moves out of the home. If your kids or heirs want to keep the home, they can repay the borrowed amount. If not, the lender will sell the home to repay the reverse mortgage loan balance, with anything left over going to your heirs.

Medicaid planning

While health insurance and Medicare do not cover long-term care, Medicaid does. The federal-state public health insurance program — which covers people with low income and limited assets — provides free or very low-cost coverage to millions of Americans. To qualify, you need to earn below a certain level of income and have assets worth under a certain amount. For that reason, many people “spend down” their assets when they can’t afford long-term care but have a net worth too high to qualify for Medicaid’s long-term care program.

To make sure you’re not depleting your assets, you should consider working with an elder law attorney or financial advisor to do what’s called Medicaid planning. This can mean strategically giving some of your assets to your kids or family members, or moving assets into a Medicaid trust — and doing so years ahead of time — so you’ll be eligible for Medicaid when you need long-term care.

Another thing you can do is purchase special, state-sponsored long-term care insurance that is specifically designed for people who expect to end up on Medicaid. These policies are available through the Partnership for Long Term Care Program and are meant to protect consumers while reducing the financial burden on Medicaid. If you choose to purchase a partnership policy, you should do so while you’re still fairly young and healthy in order to qualify.

Make plans with family and friends

For a lot of people, the ideal scenario would be to live at home as they age, with someone to care for them. In fact, most long-term care is provided at home by family or friends, often for free. Making this a reality often requires a lot of advance planning, and family and friend arrangements can take all shapes.

Multigenerational households allow family members to share living costs and other care responsibilities. In addition to saving money, care agreements with loved ones can provide emotional benefits and eliminate the social isolation that many Americans face.

Complex decisions about finances, caregiving and housing often require time, imagination and compromise. Will you move, and when? Will you share housing costs, or pay for changes to a relative’s house? How much money can you set aside for in-home care later in life? Pursue frank discussions with loved ones to see what could work for everybody involved.