Haris Ashley
Assisted living can be expensive, with costs varying by state but remaining high across the board. While insurance may not directly cover these costs, there are other ways to finance assisted living. For example, converting your life insurance policy to pay for assisted living is an option, but it is best to consult a professional before making such a large financial decision. Long-term care insurance can also be used to pay for assisted living, but this typically needs to be purchased several years before the care is required.
Which life insurance helps with assisted living?
| Characteristics | Values |
|---|---|
| Type of insurance | Long-term care insurance |
| Who is it for? | Older adults who are independent but require housing combined with other social and medical resources |
| Who provides it? | Insurance companies, e.g. Erie Family Life |
| Cost of assisted living | $5,350 per month or $64,000 per year |
| Eligibility criteria | Requires help with at least two activities of daily living (ADLs) or has a cognitive impairment |
| How to pay | Monthly premiums |
| Payout | Reimbursement for covered services; can be received daily or monthly |
| Other options | Surrender a life insurance policy for cash value; use existing policy to fund a long-term care benefit account; sell the policy for an all-cash lump sum |
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What You'll Learn
Long-term care insurance
Assisted living is a residential community for older adults, allowing them to retain their independence while receiving support with daily activities. Residents usually stay in their own rooms and have access to communal spaces, with staff on hand to provide medical and social assistance. This can be a costly arrangement, with monthly fees for assisted living facilities averaging $5,350 per month in 2023, or over $64,000 per year.
There are several types of long-term care insurance policies that can be used for assisted living:
- Individual policies, which are bought directly from an insurance agent by an individual.
- Group policies, which are offered by an employer as part of a group plan.
- Association policies, which are offered by a non-employer association to its members.
- Hybrid policies, which combine long-term care insurance with permanent life insurance or an annuity contract.
When considering long-term care insurance, it is important to review the policy's terms, benefit amount, and eligibility criteria. It is also worth noting that long-term care insurance is not the only option for funding assisted living. Other avenues include private health insurance, Medicaid, and converting an existing life insurance policy into a long-term care benefit account.
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Medicaid
Assisted living is suitable for older adults who are independent but could benefit from having their housing combined with other social and medical resources. Residents typically have their own rooms, while the facility provides a safe environment for daily activities and communal spaces for meals. It also provides a well-rounded staff that includes doctors, nurses, and social workers. According to the latest Genworth Cost of Care Survey, the national median cost of living in an assisted living facility in 2023 was $5,350 per month or just over $64,000 per year. The exact cost of assisted living varies by state but is high no matter where you live.
To qualify for a Medicaid assisted living waiver, you must meet certain financial and functional requirements. The financial requirements include having an income lower than a specific limit, which varies by state, and not having more than $2,000 in assets (with certain exemptions, such as your primary residence). The functional requirements include demonstrating a need for the types of services provided by waiver programs, such as help with daily living activities like bathing, dressing, personal care, housekeeping, or meal preparation. This determination is made through a functional assessment performed by a healthcare professional who works with Medicaid.
It is important to note that not all assisted living communities accept payments through Medicaid or a Medicaid waiver. Therefore, it is essential to contact your prospective community or your local Medicaid office, Department of Aging, Department of Elder Affairs, or social service agency to understand your options. Additionally, even with a waiver, Medicaid will not cover the cost of assisted living in full. It is common for seniors and their families to combine several payment options to cover the costs.
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Medicare
Original Medicare, which includes Medicare Part A (hospital insurance) and Part B (medical insurance), does not cover the costs associated with assisted living. Assisted living is not considered a medical necessity and is therefore not included in Original Medicare coverage. However, Original Medicare does cover short-term care in a skilled nursing facility under certain circumstances, such as after an inpatient hospital procedure.
While Medicare does not cover the costs of assisted living, there are other options to help with these expenses. Some people pay for assisted living out of pocket, with Medicaid, or with private long-term care insurance. Medicaid is a federal and state program that provides free or low-cost health care to people with limited income or resources. There are also other community-based care services and support groups that can help with long-term care needs.
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Life insurance policy conversion
Assisted living can be expensive, with the national median cost of living in an assisted living facility in 2023 being $5,350 per month or just over $64,000 per year. The cost of assisted living varies by state but is high everywhere.
There are various options for paying for senior living and long-term care, including insurance. However, insurance policies typically do not cover assisted living directly. Nevertheless, it may be possible to use a life insurance policy to help pay for senior living. Here are some options for converting a life insurance policy:
Life Settlement
A life settlement involves selling your life insurance policy outright for a cash lump sum. This can provide funds to pay for senior living. However, it is important to note that the amount received is typically less than the death benefit amount.
Long-Term Care Benefit
A life insurance policy can be converted into a long-term care benefit plan or a life care benefit plan. This involves transferring ownership of the policy to a benefits administrator, who will pay the monthly premiums to the insurance company. The benefits administrator will then pay the previous policyholder a series of monthly payments based on the value of their policy. These payments can be used to cover the costs of assisted living.
Retained Benefit
This option allows the policyholder to keep a portion of the coverage intact while no longer having any future premium obligations.
Annuity
Selling a life insurance policy to fund a tax-advantaged annuity is another option. An annuity is a contract issued by a long-term care insurance company that converts premiums into a guaranteed fixed income stream. Deferred annuities can be used for long-term care, with payouts scheduled for a later date.
It is important to carefully consider the advantages and disadvantages of each option and to consult with a professional before making any decisions. Additionally, it is worth noting that private health insurance may cover some medical costs related to senior living, such as skilled nursing, but this usually requires a medical referral.
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Private health insurance
While private health insurance may not directly cover assisted living, it can help with some related costs. For example, it may cover medical expenses associated with assisted living, such as medications and doctor's visits. It is always recommended to speak with a professional, such as your insurance agent, to understand the specifics of your insurance plan and how it may contribute to the costs of assisted living.
Additionally, there are other options to consider when exploring ways to finance assisted living. For instance, converting a life insurance policy to a long-term care benefit account can be used to fund assisted living. This involves using the existing policy to receive benefits that can be applied to long-term care. Another option is to sell the life insurance policy for a cash value, providing a lump sum that can be used for assisted living expenses.
Furthermore, long-term care insurance is specifically designed to cover the costs of long-term care services, including personal care like assistance with bathing and dressing, which are common needs in assisted living. These policies often include a predetermined amount that can be received daily or monthly and can be used in various settings, including assisted living communities.
It is worth noting that Medicaid may also help cover medical assisted living costs for qualifying low-income seniors, but this varies by state and not all assisted living communities accept Medicaid. Therefore, it is essential to understand the specific regulations and eligibility requirements in your state.
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Frequently asked questions
Assisted living is generally not covered by insurance. However, long-term care insurance can help pay for assisted living. These policies are typically used when seniors need assistance with activities like bathing or dressing.
Long-term care insurance is designed to cover the costs of long-term care services, including medical and personal care. It can be used to pay for caregiver assistance and necessary therapies in assisted living.
To qualify for long-term care insurance, a policyholder must typically meet the benefit triggers and the elimination period. Benefit triggers are eligibility requirements, including the need for assistance with at least two out of six activities of daily living. The elimination period is how long a policyholder must pay for their services after the benefit trigger begins.
Yes, you can use your life insurance policy to cover assisted living. However, it is essential to consider the pros and cons of this option. While it can provide funds for assisted living, it also closes out your life insurance policy, meaning your family will not receive any money from it upon your passing.
