The Long-Term Care Dilemma: Understanding Your Funding Options

Long term care often sounds like some small possibility in the future that costs a ton of money to avoid – and it can be quite tempting to ignore it. Often though we or someone we love does end up needing some version of it – and as with anything without proper planning it can end up being a costly endeavor.

Navigating the complex world of long-term care funding can be overwhelming. Deciding how to plan and pay for these costs can be daunting, and there are several options to consider, each with its pros and cons.

Long-term care can include assistance with daily activities, nursing care, or specialized care – we never know when a health crisis or accident can have us end up in and out of hospitals, rehab facilities and then eventually when insurance carriers stop covering our in- house stays we are sent home with instructions and “the best of luck.” Then what? Lack of care can really leave folks feeling helpless – and their families are often faced with having to manage the last-minute challenge of finding – and funding – help.

The title of this section on Genworth says it all and is worth a read: Most people don’t know what long term care is until they or someone they love need it.

Funding Options

First, it’s important to understand what we’re looking at financially, so let’s address the sticker shock upfront. While costs vary based on location, type of care and length of stay, a year in a nursing home can range from $50,000 to $100,000+ and planning for several years of care (5–7 years on average) is often advised.

Once you have digested that here are some options to consider:

• Savings and Investments: One approach to funding long-term care is through personal savings and investments – often called ‘self-funding.’ This method offers flexibility and control over your care choices. However, it requires significant financial discipline and may not be feasible for everyone. If this is the route you prefer, consider setting up a separate investment account earmarked for only for potential long-term care needs.
• Home Equity: Tapping into home equity through a reverse mortgage or home equity line of credit can provide funds for long-term care. It is however important to understand the implications of a reverse mortgage. It may impact your ability to leave your home to heirs and could affect eligibility for certain government benefits.
• Family Support: Some may consider relying on family members for care or financial assistance. It is crucial to have open discussions about expectations and capabilities and it can place significant physical, emotional, and financial strain on family members.
• Long-Term Care Insurance: This is designed to cover care costs that aren’t covered by health insurance, Medicare, or Medicaid. Basically, you pay premiums and if you need long-term care, the policy pays out a daily or monthly benefit. There are a lot of details to pay attention to including the fact that policies typically have a waiting period before benefits begin. This is also a costly option, as premiums are expensive and may increase over time. Plus, if unused, premiums paid are typically not refunded.
• Long-Term Care Riders: An alternative to standalone long-term care insurance is a long-term care rider added to a life insurance policy or annuity. These can provide more flexibility than standalone policies but less comprehensive coverage than a standalone policy. Then again if long-term care isn’t needed, the life insurance death benefit or annuity value remains intact.

Making an Informed Decision

Choosing the right long-term care funding strategy depends on your individual circumstances. Remember, the best approach often involves a combination of strategies. You might pair some level of self-funding with a long-term care insurance policy or rider.

The long-term care dilemma is complex, but understanding your options is the first step towards creating a solid plan. Start the planning process early, regularly review your strategy, and be prepared to make adjustments as your circumstances change. By taking a proactive approach, you can help ensure that you or your loved ones receive the care needed while protecting your financial well-being.