Private Payment Options for Senior Living and Home Care
Discover more about self-paying for senior care and alternative ways to pay. Learn how to use life insurance policies, long-term care insurance, annuities, and home-related financial loans to give you peace of mind.
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For the average retiree, the “good old days” of living off retirement funds, pensions, 401ks, and company stock returns isn’t always an option. So, you might be wondering how to afford the costs of living in a senior living community like a nursing home or assisted living facility. The costs to reside in these places are steep. The median yearly cost of a nursing home stay is $110,360 for a semiprivate room, and you’re looking at $68,110 annually for a residence in an assisted living community.
While a bit more flexible, hiring caregivers for home care can also add up. The median home care cost to bring in a homemaker and home health aide ranges from $72,820 to $80,102 per year, respectively.
Depending on your needs, age, current medical coverage, income, and/or eligibility for state, government, or local programs, you will likely need to self-pay for part or even all of your senior living expenses. For this reason and others, many are focusing on retirement planning and long-term financial planning early on to meet their senior care needs later in life — and wisely so.
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Why Do More People Need to Privately Pay for Senior Care?
While many are planning ahead for their later years, keep in mind that many are not. Fewer workers receive pensions nowadays. Few of us have access to financial education and know the steps to take to best invest or save. With the cost of living so high and many struggling to make ends meet, it’s no surprise that Americans are by and large not saving or are unable to save enough for their senior years.
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According to an AARP survey, 61 percent of adults aged 50 years and older are worried they will not have enough money to support themselves in retirement. And 20 percent of older adults don’t have retirement savings at all.1
Did You Know? Research shows that many are left out of America’s retirement system. About 41.4 percent of full-time working Americans don’t have access to retirement plans, 43.5 percent don’t participate, and 49.9 percent don’t receive an employer match. Those numbers don’t even include part-time workers.2
In addition to workers saving less or not saving at all, our medical insurance does not cover everything we need at a 100 percent rate in our later years.
Why Focus on How to Pay for Senior Living and Home Care?
We’ve talked about the current market costs to reside in senior living communities and the price to get assistance in your own home if you’re aging in place. In the U.S., even for those with insurance, paying for medical care can quickly deplete savings.
When the need for full-time care arrives, those relying on Medicare, Medicare Advantage programs, traditional health insurance policies, or even veterans programs, are likely to face out-of-pocket costs. Those with minimal assets may be eligible for state-funded assistance such as Medicaid to help with expenses, but it’s important to assume you will likely have to contribute a good amount yourself in your retirement years.
Pro Tip: Medical costs can easily accumulate for aging adults. It is estimated that a healthy 65-year-old couple who retire will use nearly 70 percent of their lifetime Social Security benefits to cover medical costs in their golden years.3
No need for alarm. We’ve put together some ways seniors and their families can obtain funds to cover private payments for senior living expenses and in-home care.
Life Insurance Policy Conversions
Several types of life insurance policies can be used or converted into funds for home care or senior living facility expenses before the policyholder passes away. This route may be a great option for seniors looking to preserve their eligibility for Medicaid or for those who have not planned ahead for their retirement years.
Older adults with inadequate savings or those who want to be cautious about their money can potentially use their life insurance policies to help them fund long-term care expenses.
Several strategies you might explore include the following:
- Sell your life insurance policy to a third party for a lump sum to fund your long-term care. This option can work for individuals with shorter life expectancies.
- Access a portion of the death benefit tax-free while you’re still alive to pay for specific long-term care expenses. Some whole life and universal life insurance policies have riders that enable you to do this. Look into eligibility requirements here.
- Surrender your policy in exchange for its cash value. Note that this option may have tax implications and can impact Medicaid eligibility.
- Borrow against the accumulated cash value of the policy. Note that interest rates apply, and the loan amount is deducted from the death benefit upon your passing.
- Exchange the cash value of your existing life insurance policy for a new policy with long-term care benefits, potentially avoiding tax implications.
We’ll go into more detail about using the above strategies and how to use different kinds of financial vehicles to help you pay for your senior care costs.
How to Use Term Life Insurance
Term life insurance policies typically do not allow you to use the above options as they have no cash value. These types of policies are designed to last for a specific term — typically 10, 15, or 20 years.
While term life insurance is generally more affordable for younger individuals, it is available to seniors. You might need to take a medical exam or fill out a health questionnaire. Policies vary based on your age and health.
Pro Tip: Check out our comprehensive guides on estate planning basics for seniors and elder law and senior legal matters for more valuable information about planning for senior living costs in retirement.
Essentially, you’re buying a plan that will pay out if you were to pass away during that specified term. Term life insurance policies can sometimes be converted into permanent life insurance policies, such as whole life or universal life, before their term expires.
Keep in mind, the converted policy may then enable you to access its new cash value. But you usually pay significantly higher premiums by swapping your old policy for this new type of policy. Using this complex strategy has limitations when used as an avenue to pay for long term care.
How to Use Universal or Whole Life Insurance
Whole life and universal life insurance are both types of permanent life insurance. That means they provide coverage for your entire life, unlike term life insurance, which only covers you for a specific period of time. Both types build cash value over the years that you can access through loans or withdrawals.
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You might use universal or whole life insurance as a way to boost savings to help you pay for senior living and senior home care. If you’ve paid enough premiums on a whole or universal life policy, then you can probably take advantage of the policy’s built-up cash value. How? By withdrawing against it partially or wholly, depending on your particular policy.
How are whole life insurance and universal life insurance different? Whole life insurance offers a more predictable and structured approach. Your monthly payments and how much your savings grow are generally set. And you can usually borrow money tax-free.
Universal life insurance, on the other hand, offers more flexibility and less predictability. You can adjust premiums (what you pay each month) and even how much coverage you have. However, the cash value growth is also going to be influenced by market performance, which is more uncertain.
Still deciding if life insurance is right for you? Check out our guide to the best life insurance for seniors.
How to Use Long-Term Care Insurance
While some long term care policies may allow for limited access to cash value, this is not a primary feature of long-term care insurance. Long-term care insurance covers the cost of necessary services — such as assisted living care, nursing home care, and home health care. These may not be fully covered by Medicare or other supplemental insurance.
Long-term care insurance specifically covers these services for seniors:
- Help with everyday chores like bathing and dressing
- Cognitive impairment care
- Home modifications to improve safety
- Home care services like meal preparation and medication reminders
- Respite care for family caregivers
Long-term care insurance, however, can be expensive. Premiums are based on age, health, and the level of coverage. Also, remember that costs can increase a lot over time. Make sure to check for limitations on the amount of coverage and the duration of these benefits.
Pro Tip: Try our free long-term care calculator to estimate how much you’ll need to cover the cost of long-term care in retirement.
When is it worthwhile to use long-term care insurance to offset expenses? Consider it if you have a family history of Alzheimer’s or other cognitive impairments, or if you have major assets to protect. Reach out to a financial adviser and a long-term care insurance specialist to determine if this type of insurance is a suitable option for you to help you pay for advanced care.
How to Use Viatical Settlements
A viatical settlement allows individuals with terminal illnesses to sell their life insurance policies to third parties for a lump sum. This can provide immediate financial resources. While its value might be less than at full maturity, the policyholder benefits from getting access to these proceeds while still alive and when it’s needed.
Investors or financial institutions purchase these policies at discounted prices and pay the ongoing premium. Upon the insured’s death, the buyers receive the full death benefits from the life insurance company, thereby potentially generating profits. The actual payout percentage will vary based on factors such as the insured’s health, age, life expectancy, the policy’s death benefit, and prevailing market conditions.
However, it’s a complex and risky option. Ethical considerations arise as the buyer profits from the insured person's shortened life expectancy. It’s crucial to consult with financial and legal experts before considering this option. Viatical settlements are legal in most states, but regulations vary by state.
How to Use Insurance Annuities
Annuities are long-term investments used for retirement income purposes and can complement your savings and other investments. They are especially helpful for those concerned about outliving their savings.
In return for your investment, you can receive regular payouts from these contributions later in life. Unlike life insurance policies, which only pay benefits when the insured dies, annuities offer a stream of income payments to you over a specified period or for life.
Pro Tip: To estimate how much money you’ll receive from your annuity in retirement, use our free annuity calculator.
With these financial products, you make monthly premium payments or lump-sum payments and later receive a return. Many seniors like fixed annuities as they get a guaranteed interest rate and a stable income. Variable annuities are riskier, as payments vary based on investment performance.
When it comes to the distribution phase for the annuity, you can choose from immediate or deferred. Both provide a continuous stream of payments for life. Immediate annuities allow a disbursement after a lump-sum payment, offering a stream of income right away. This is also commonly used by seniors. With deferred annuities, you set a future date to receive payments and they grow over time.
While annuities can have high fees and be complex to understand, they also offer valuable benefits.
How to Use Reverse Mortgages
Another way to privately fund senior care is to apply for a reverse mortgage. A reverse mortgage is a loan for homeowners aged 62 or older that enables them to tap their home’s equity. The equity can be turned into cash flow and be used to supplement current finances.
There are many benefits: You can get tax-free funds without selling the home or having to move out of it. The reverse mortgage itself requires no monthly principal or interest payments.
There are also many drawbacks: Closing costs, fees, and one-time government mortgage insurance premiums can add up. A reverse mortgage reduces your equity in the home and interest on the reverse mortgage increases the loan balance. You still have to pay property taxes and homeowners insurance or you might head to foreclosure.
Pro Tip: The U.S. Department of Housing and Urban Development (HUD)’s Reverse Mortgage Program (HMR) website gives a wealth of info on eligibility, loan terms, and lenders. Find fact sheets, a counseling center, and even a HUD-approved counselor near you.
How to Use a Home Equity Loan or Home Equity Line of Credit
Seniors who need money can use their home as collateral. With a home equity loan, you receive a lump-sum payment up front and have to repay the loan over a fixed amount of time. You can usually get a fixed interest rate, too. Keep in mind, you’ll begin accruing interest on the full loan amount right away, but this might be a good option for a senior who needs a big chunk of money at once.
A home equity line of credit (HELOC) offers a revolving line of credit. You can borrow and repay funds as needed and are usually offered a variable interest rate. The benefit of a HELOC is that you only accrue interest on the borrowed amount. It can provide a financial cushion for seniors, especially for unexpected or new ongoing expenses.
Remember that failure to repay can lead to foreclosure, as you are using your house as collateral.
Pro Tip: Selling a home may be yet another way to pay for senior living and care. Especially if you have significant equity, need to downsize, and can’t otherwise afford senior living or other care. The proceeds from a home sale may cover the cost of moving, pay your monthly expenses, and give you peace of mind.
How to Find Affordable Senior Care Near You
There are numerous options when it comes to senior health care, and many are covered by various types of policies. However, those who find themselves in need of additional financing can opt for any of these private payment options. Costs vary even among the same region and locality, so let our experts help you find affordable care near you and further explore your payment options. Using our senior living directory, you can search for options in your area and speak with a housing expert to find the best option for you and your budget.
AARP. (2024). New AARP survey findings.
Economic Innovation Group. (2024). Who's left out of America's retirement savings system?
Merrill. (2024). Healthcare in retirement.
