Senior Living

5 Things to Know About Financing Senior Living

Life after retirement is something most people look forward to, but financing senior living can cast a shadow on those golden years. When considering how to best finance the future at home or in a senior living community, there are many facts every senior should know first. Here’s a rundown of five essential things every senior should know about financing senior living.

1) Personal wealth for financing senior living

By far, most people pay for senior living with personal income from savings, investments, retirement benefits, assets from a home sale, and/or Social Security. Knowing exactly what these combined factors amount to will help determine how to pay for senior living. Consulting with a financial advisor before it’s time to retire to create a retirement plan is a smart way to be prepared to live the best senior life possible.

2) Long-term care insurance has limits

According to LongTermCare.gov, “At some point in our lives, about 60 percent of us will need assistance with things like getting dressed, driving to appointments, or making meals.”  For those who planned ahead and purchased long-term care insurance or who are thinking about it, it’s common to think it will cover everything when the time comes. 

But like all insurance, long-term care insurance only covers what was chosen at the start. For example, the maximum amount paid per day, the maximum number of days paid per year, and the combined lifetime maximum a policy will pay are all determined at the point of policy purchase. As a result, although some policies provide a lifetime of services, most do not.

Another factor to keep in mind about long-term care insurance is the ever-increasing cost of care. Since insurance companies can raise premiums, be sure to check the company’s history of premium rate hikes before purchasing. For more about what long-term care insurance, the AARP article, “Understanding Long-Term Care Insurance,” offers a wealth of information.

2) Medicare is only for healthcare

Medicare is a federal medical insurance program that working Americans pay into, similar to Social Security. Medicare kicks in at age 65 for most people and has three component parts:

Part A is insurance that covers inpatient hospital care, skilled nursing, hospice and limited home health care.

Part B is insurance for specific physician services, outpatient care, preventative health care, and medical supplies.

Part D is prescription drug coverage which can be added to Medicare plans through original Medicare, Medicare Medical Savings Account Plans, and some Medicare Cost Plans and Fee-for Service Plans.

The missing Part C is actually called Medicare Advantage which is essentially a package of coverage that includes Parts A and B and often D.

The key thing to know about Medicare is that it only covers the medically necessary hospital and rehabilitation costs, and only for a limited amount of time. It covers neither the cost of senior living nor long-term skilled nursing care.

3) Medicaid coverage varies by state

Medicaid is an incredibly helpful source of financial assistance for those who qualify based on income and assets. According to medicaid.gov, “Low-income families, qualified pregnant women and children, and individuals receiving Supplemental Security Income (SSI) are examples of mandatory eligibility groups. States have additional options for coverage and may choose to cover other groups, such as individuals receiving home and community-based services and children in foster care who are not otherwise eligible.”

Depending on the state, Medicaid may cover a range of assistance at home or in a senior community including personal care, homemaker assistance and even skilled nursing. But Medicaid does not pay room and board. The American Council on Aging offers resources for those seeking long-term care on Medicaid including links to every state Medicaid program.

4) Life insurance can help finance senior living

Traditionally, life insurance is intended for those we leave behind and to cover funeral expenses, but life insurance can actually help pay for senior living under some circumstances. One way is called the Living Benefit, which is the stipulation (sometimes a rider) in a life insurance policy that provides a benefit to a living person under certain circumstances such as a critical, chronic or terminal illness. The amount of benefit varies from company to company and may be a percentage or a maximum dollar amount. Many life insurance companies now include the Life Benefit at no cost while others charge for a rider. Learn more about Living Benefits in the coverage.com blog, “Living benefits life insurance.”

Another way to use life insurance for senior living is to convert the policy into a long-term care benefit plan. This is a great solution for those who need additional monthly income to pay for long-term care. Some people may also consider cashing in a life insurance policy, but it’s better to withdraw or borrow from the policy instead of surrendering it all together. In all cases, it’s best to consult with your financial and/or insurance agent to assess the best course of action for the circumstances.

Whole and universal life insurance are particularly beneficial when it comes to amassing wealth for long-term goals like senior living because, over time, they accrue cash value that can be borrowed against. Both whole and universal life insurance policies have pros and cons to consider, but a good overview of each is available in the investopedia.com blog, “Whole Life vs. Universal Life Insurance.”

Keep in mind that converting life insurance is counted against eligibility for medicaid.

5) Veterans benefits

All U.S. military veterans may be eligible for a range of benefits, based on their assessed need (or disability) and income. Among these are pensions and services such as homemaker and health care at home and in a senior residential community, although room and board are not covered. 

For veterans or their surviving spouses who qualify for a VA pension, the Aid and Attendance benefit is a potential source of funding. Seniors must meet at least one medical requirement and not exceed the asset maximum, which was set at $129,094 in 2020 for single or married veterans. To learn more about how the Aid and Attendance benefit can help pay for senior living, the AARP article, “VA’s Aid and Attendance Benefits Can Cover Long-Term Care Costs for Vets” provides an in-depth look at how it works.

The Veteran’s Administration also has Community Living Centers and state-owned and operated State Veterans Homes that provide nursing care as well as adult day care. Additional services include hospice care, palliative care, respite care, remote monitoring care, and skilled home health care. Again, all veterans’ assistance is based on need and income and is available only through the VA

Taken alone, the costs of a senior living community can induce sticker shock until you run the numbers and realize that those costs with the associated services and amenities are not far greater than the cost of living at home with the same services. Our blog, “Comparing Costs: Home Versus a Senior Living Community,” can help compare apples to apples and gain a realistic view of the costs of senior living. To learn more about living the good life at Arrow Senior Living, contact us today.

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