“How do I pay for assisted living?” That is the question many adult children will face as their elder parents and loved ones age. Unfortunately, the statistics show that they will face it soon after an unfortunate event or difficult circumstance. Medicaid, Social Security income and veterans benefits are the somewhat obvious options to help pay for assisted living but our experienced senior advisors have compiled a list of additional options you may have not yet considered.
- Cashing Out a Life Insurance Policy
A life insurance policy is traditionally purchased with the thought of providing one’s family monetary support in the event of a death. However, did you know a life insurance policy can also provide financial support in the here and now? To cash out a policy, ask your life insurance company about “accelerated” or “living” benefits. Typically, the company that originally issued the policy buys it back for 50 to 75% of its face value. The decided amount is 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 insurance company that issued the policy refuses to cash it in, don’t despair. Your loved one also has the option to 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% of the policy’s face value. After buying the policy, the settlement company pays the premiums until the policyholder dies. At that point, the company receives the benefits rather than the policy’s original beneficiaries. Another little-known option known as a “life assurance” benefit or a “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% of the value of the policy which is less than a life settlement — but is available for lesser-value policies that might not qualify for life settlement.
- Use an Annuity
An annuity may be a good option if you are concerned about outliving your resources. It can help you be sure that you’ll always have at least some money coming in even if you live longer than you expect. 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. The underwriter of the annuity takes the risk that you might live longer than the money lasts – while the purchaser is satisfied to have the guarantee of regular payments. Keep in mind that underwriters of annuities are not in business to lose money. In fact, an early death is how they earn a profit but annuities can still be a better option for you than just consuming your money year by year. Another benefit of the annuity is that they 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 with many variations. Some can be purchased with the understanding of receiving future payments while others deliver immediate payments. Some are based on a fixed interest rate while 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 aware that unscrupulous marketing schemes are rampant and annuity fraud is more common than most people realize. These thieves push phony annuity deals by targeting vulnerable seniors through telemarketing, education seminars, and webinars. You’ll want to choose a well-established and reputable company when you buy an annuity.
.3. Use a Reverse Mortgage
The reverse mortgage may be the solution you’re looking for if your loved one owns their home outright or has only a small mortgage on it. A reverse mortgage allows you to borrow money based on equity in your home, which is paid back when you sell the home or move out. The home owner has the option to receive the funds in either in a lump sum or in a series of monthly payments depending on the loan structure. Based on the home’s value, interest rates, the applicant’s age (usually 62), and other factors, the bank will decide on a value. The homeowner gets tax-free cash flow as a loan against that equity–a loan that doesn’t need to be repaid until the house is sold or the owner moves out or dies.
Keep in mind that someone must remain living in the home in order to qualify for a reverse mortgage so there are limited scenarios where this is an option. Consider the scenario of a senior couple where the husband is healthy, but his wife has advanced Alzheimer’s disease. The husband is looking for professional care for his wife and he owns his home outright. They could use a reverse mortgage, cash out the home’s equity, and pay for the wife’s care at an assisted living community with memory care, while the husband could remain at home. 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. As a result, it is not a good option for those who wish to keep the home in the family.
Finally, reverse mortgages aren’t for everyone, so it’s important to work with a reputable lender and vet their terms thoroughly. Unscrupulous lenders have been known to cheat senior citizens with mortgages containing punitive terms and fees so make sure you understand the terms and read the fine print. There may also be high fees involved or clauses about homeowners’ insurance, mortgage insurance, and/or keeping the property well maintained. Such clauses can make it easy to lose the home.
- Use a Bridge Loan
If your loved one doesn’t have financial assets that are easily liquidated, a bridge loan may be a good option to consider. Bridge loans are short-term loans designed specifically to provide the funds for a move to assisted living. They “bridge” the time gap between the immediate need for assisted living placement and the future expectation of freeing up funds; such as the sale of the home, financial product, or even buying the time needed to obtain veterans benefits. There are two types available: the unsecured and the secured line of credit. 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. 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. The second type is the secured (collateral required) loan. Since it is secured, it is a lower-interest, lump-sum loan secured by real estate or another asset that all parties agree to collateralize the loan.
Qualification for both types of loans are based on the usual criteria such as debt-to-income ratio, credit history, and credit score. The senior or even an adult child can be the borrower and multiple family members can cosign the loan application. Of course, as with any loan, cosigners are liable if the borrower runs into trouble with repayment so make sure you understand the terms before following through.
- Rent Your Home
In circumstances where there is no one to remain living in the residence and the family does not wish to sell, then renting the property may be an option. 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. Larger acreages or small cabins in the forest, for example, are often cherished by family members. Consider using the rental income to pay for assisted living. In this way, ownership can remain in the family for years to come.
- Use Long-Term Care Insurance
If your loved one bought long-care insurance, you’re among the lucky ones. Long term care insurance is an umbrella term for insurance that covers nursing home care, home-based health care and assisted living in addition to other medical services. It can help pay towards the cost of assisted living for those who have a policy but there are a few restrictions. For example, most long-term care insurance policies won’t cover the costs unless the insured is unable to perform two or more “activities of daily living” (ADLS). These activities include such things as bathing, dressing, walking, getting from a bed to a chair, using a toilet and eating. The insurer will usually evaluate with a physician of their choice—not yours—to see if your condition qualifies for coverage. Long-term policies vary in types but the most common is the “facility-only” policy that covers care received strictly in a licensed assisted living facility or skilled nursing facility.
- Pool Family Resources
You may be surprised what solutions can be achieved by getting the entire family together to discuss your loved one’s move to assisted living. Brainstorming in a group setting can prompt ideas nobody had thought of before. For example, a sibling with available funds may be willing to pay for assisted living now until the home is sold or other funds are freed up. These costs of funds could amount to a significant savings as compared to a bridge loan. Or, perhaps a sibling would be willing to pay for assisted living for an agreed time period in exchange for a title of some sort or deed. Others may be able to agree to a monthly contribution and the pooling of resources can pay. Communicate with other family members and develop a plan.
These are just a few options families have successfully utilized in the past to pay for assisted living. Transitions Assisted Living is committed to empowering family decision makers with vital information as it relates to assisted living Phoenix, AZ. Though we do not make financial recommendations, we do make it our business to recommend high quality senior care locations that relate best to your loved one’s specific situation. We want your loved one to make a single and successful transition to their new location!