For many, long-term care insurance policies provide a viable way to cover the costs of nursing homes, assisted living, and other forms of care. However, this form of insurance is not the only way to pay for long-term care.
Depending on your financial situation and health, there might be a better alternative to long-term care insurance.
High long-term care costs: It’s no secret: Long-term care costs are extraordinarily expensive, and they’ve only continued to rise. In 2022, the national median cost of assisted living is $4,635, while nursing homes and home care cost $8,145 and $5,106, respectively. Long-term care insurance can help defray some or all of these costs.
Likelihood of needing coverage: According to the Administration for Community Living, a person turning 65 today has a 70% likelihood of needing some form of long-term care, and most long-term care insurance policies will cover many types of care.
Inflation protection options: Many long-term care insurance policies offer optional inflation protection options to ensure that you’ll receive the full amount of covered expenses in the future, should you need it.
High monthly premiums: With a long-term care insurance policy, you can expect to pay anywhere from $79-$533 per month, and the older you are, the more expensive the policy will be.
Difficult to determine necessary coverage: In many cases, the care you eventually need might not align with your plans (for example, planning to live in assisted living but requiring the medical care of a nursing home). This can make it difficult to determine how much coverage you need with your long-term care insurance policy.
Lack of coverage for those with preexisting conditions: Many insurers will deny coverage to those who have cancer, Parkinson’s, Alzheimer’s, or other conditions.
Lack of payout: Depending on your policy, if a person dies without needing long-term care, their beneficiaries won’t receive any type of payout.
The Best Alternatives to Long-Term Care Insurance
While our favorite alternatives to long-term care insurance vary widely in terms of their cost, coverage, and flexibility, one of them might work better for your needs, particularly if you want to avoid costly monthly premiums.
Deferred lifetime annuities
With annuities, you typically pay a large sum of money that an insurance company invests. From there, you receive a certain amount paid out to you over a designated period of time. A deferred annuity lets your initial investment grow in the market for longer before it is paid out.
A lifetime deferred annuity is when a senior chooses future payments that will cover them for the remainder of their life. It’s a good option for seniors who want to have guaranteed income for retirement or long-term care funds in the future. These types of payments provide an ideal way to pay for long-term care costs.
Typically, you’d be able to select a future date for when you’d like to start receiving the guaranteed income after your first deferred lifetime annuities purchase. Currently, deferred lifetime annuities don’t have any contribution limits.
Guaranteed income for retirement
Can’t withdraw funds right away
Lack of flexibility and liquidity with annuities
A hybrid life insurance policy
A hybrid life insurance policy comes with a long-term care rider. Essentially, it’s a combination of both long-term care insurance and life insurance policies. In the event that you pass on and don’t use your long-term care coverage, your beneficiaries will receive guaranteed death benefits.
Flexible benefits in one policy
Death benefits for beneficiaries
No premium rate increases
Builds cash value
Less benefits for policy premiums
Usually more expensive than traditional LTCI policies
If you currently own your home, it can be a funding source for long-term care expenses. To pay for long-term care expenses, you can take out home equity lines of credit and borrow the amount you need. This means you would be using the equity in your home as collateral to help pay for certain expenses.
Lower monthly payments with home equity loans
Can use funds toward any long-term care expenses
Not available to those with poor credit
Medicaid, a federal and state healthcare program, can help pay for certain institutional long-term care services. It can also help pay for certain costs at residential facilities including nursing homes and skilled nursing facilities. That said, Medicaid likely won’t be able to pay for the entirety of your inpatient care.
Can pay for partial long-term care costs
Nursing home long-term care costs covered
Ideal for low-income seniors
Pays for only some, not all, long-term care costs
Doesn’t cover assisted living
A reverse mortgage lets you convert a portion of your home equity into cash without selling your home. This can be a good option for seniors who need assistance paying for retirement expenses or long-term care expenses. Currently, the only reverse mortgage that’s insured by the U.S. Federal Government is the Home Equity Conversion Mortgage, which is available through an FHA-approved lender.
Can help pay for long-term care costs
Income earned from reverse mortgages is not taxable
Interest rates can change over time
Lending fees and closing costs
Potential for losing your home
Short-term care insurance
Short-term care insurance functions similarly to long-term care insurance. When care is needed either at home or in a facility, short-term care insurance can be used to cover the cost. The main difference is that this type of policy will only provide coverage for up to one year. While this might not be ideal for someone planning to move to a senior care community, it can certainly come in handy for those recovering from surgery or injury.
Lower premiums than long-term care policies
No medical exam for short-term care insurance policies
Not easy to find short-term care insurers
Temporary solution for long-term care needs
While long-term care insurance can save you a lot of money in the long run, it’s not a good fit for everyone. Particularly for those who would struggle to afford monthly premiums of $200 or more, it might be worth it to pursue a hybrid life insurance policy.
In general, a reverse mortgage can provide an alternative and consistent stream of income to help pay for long-term care costs; however, this method should be used carefully.
Amie has been writing about senior care products and services for the last decade. She is particularly passionate about new technologies that help improve the quality of life for seniors and their families. Seeing her parents and grandparents age made Amie ask herself, “Would this be good enough for my loved ones?” In her spare time, Amie enjoys outdoor adventures and spontaneous road trips. Learn more about Amie here