As my parents get older, I’ve been thinking more about what will happen if they one day need senior care. If an assisted living community turns out to be the right choice for them, one of the first questions that will surely arise is how to foot the bill.
A lot of people pay for assisted living with a mix of personal and family funds, but that convenient combination of housing, care and amenities doesn’t come cheap. In the U.S., monthly assisted living rates average anywhere from $2,500 to nearly $7,000 a month.
Covering the costs of assisted living, where residents get help with activities of daily living and benefit from programs and amenities to keep loved ones engaged and healthy, may mean drawing from a retirement pension, personal savings or other assets, along with some financial help from adult children or other relatives.
With that in mind, here are six ways to pay for assisted living for mom, dad or both of your parents:
1. Pooling family funds
My brother and I are in our mid-30s, so we’re starting to talk about options for care for our divorced parents – and how we will be able to pay for whatever type of care they want.
Since we’re all scattered across California – my brother is in Los Angeles, I’m in the San Francisco Bay area, Dad lives in the Central Valley and Mom is about two hours away in the south Bay Area – it may not be feasible for my brother and me to be full-time caregivers.
But we can certainly help with the costs of assisted living.
Mom has said that she wants to make sure that she’s at a stage financially that she can afford to move into a residential community at some point. Just thinking through how we can pool all our financial resources to make that happen is a comfort.
2. Long-term care insurance
Long-term care insurance is something my parents didn’t think about, but it can be a good way to plan ahead to cover assisted living costs and keep your parents’ savings from being drained.
Since assisted living facilities don’t accept Medicare payments, and only some accept Medicaid, having long-term care insurance to pay for assisted living can provide some peace of mind. But the amount of assisted living fees a policy covers varies, and some policies don’t cover assisted living facilities, so make sure your parents fully understand the policy before buying one.
Joseph Matthews, attorney and author of “Long-term Care: How to Plan and Pay for it,” cautions that a policy with poor terms and coverage is a waste of money.
Any long-term care insurance policy your parents buy, he adds, should be from a highly rated, reputable company and should include controlled premium increases and inflation protection.
3. Life insurance policy
If your parent has a life insurance policy, they could choose to cash it out to help pay for assisted living.
Like my parents, your mom and dad most likely bought their life insurance policies decades ago to provide for their children in the event of their death. But today, many insurance companies provide an accelerated benefit option in which the insurer will buy back the life insurance policy for anywhere from 25 to 100 percent of the death benefit.
Estate planning attorney and author Steve Weisman believes a life insurance policy with an accelerated death benefit option is a better way to pay for assisted living than long-term care insurance.
If you don’t use the long-term care insurance policy to pay for care, “there’s no financial benefit to the insured,” he says. “However, with a life insurance policy with an accelerated death benefit rider, if the insured never needs to use the money for long-term care in a nursing home or assisted living facility, they still have a valuable life insurance policy.”
Plus, he notes, life insurance policy premiums tend to remain stable over time while premiums on long-term care insurance policies are more likely to rise.
4. Veterans benefits
Another option? If either of your parents is a U.S. military veteran, he or she may be able to use Veterans Administration (VA) benefits to help cover assisted living.
There are two different types of VA benefits they can use – one is the Aid and Attendance pension for any veteran or surviving spouse with an income below a certain amount who is disabled. The other set of benefits is available to any veteran with a service-related injury or disability.
Your parent’s local VA office can help determine whether they’re eligible. Applying for and accessing VA benefits can be a long and time-consuming process so you may want to work with a geriatric planner who knows the system well.
5. Reverse mortgage
For senior homeowners who’ve paid off their house, a type of home equity loan known as a reverse mortgage, or Home Equity Conversion Mortgage (HECM), is another asset they can leverage to pay for assisted living.
“It’s a way to tap into the equity of your home,” Dennis Johnson, a credit counselor with ClearPoint Credit Counseling Solutions told CreditCards.com’s Allie Johnson. Johnson counsels seniors who are considering a reverse mortgage.
Whether an HECM is a good choice or not depends on the situation, he says.
To qualify, one homeowner must be at least 62 years old, and at least one other homeowner must continue to live in the home as their primary residence. This means this could be an option if one of your parents needs assisted living care while the other prefers to stay in the family home.
When you take out an HECM, you can get your payment through a line of credit, as a lump sum or in monthly payments. You still have to pay property taxes and insurance, but there’s no monthly payment, and the loan doesn’t have to be repaid until you die or move out of your home permanently.
Another option to help defray assisted living costs is an annuity – a series of regular payments from an insurer that older adults can use to help stretch their money. An immediate annuity provides a monthly stipend in exchange for one upfront payment from the policyholder.
The one-time premium is converted into a monthly payment that’s usually paid out for the rest of the policyholder’s life. A big advantage of an annuity is that it ensures the policyholder will always have some income, even if he or she lives longer than expected.
If your parents are under 85, they can also apply for a deferred long-term care annuity, which creates one account to pay for long-term senior care costs and another to be used for whatever they choose.
Bottom line? These are six ways – but there are probably others, too – that can help you pay for assisted living for your aging parents. My parents are still relatively young and Dad’s living with his girlfriend – so their care in later years is not something that’s an immediate worry.
Still, just knowing that my brother and I and our parents likely will have the means to afford assisted living puts my mind at ease. Just working through your own financial options for caring for your aging parents may help you feel a bit better, too.