How to Pay for Assisted Living: Payment & Financing Options

One of the first questions people ask when considering assisted living is, "How will I pay for it?" According to Genworth Financial, the national median cost of assisted living facilities is $4,500 per month, but the cost can vary widely depending on location. You may see monthly prices anywhere from $2,500 to over $6,000 per month, so it's important to explore all your options before deciding.

There are several ways to pay for assisted living, including using Medicaid, Medicare, long-term care insurance, VA benefits, a reverse mortgage, an annuity, or a bridge loan. Let's take a closer look at each of these options.

Using Medicaid to Pay for Assisted Living

Medicaid is a government program that provides health coverage for low-income individuals and families. Medicaid programs exist to help those with limited financial means pay for their healthcare needs, which usually includes the higher level of medical care you would find in a nursing home but not in an assisted living facility.

Most Medicaid plans do not cover the cost of assisted living facilities, but this coverage varies by state. Contact your local Medicaid office to determine if your state offers this coverage.

If your state's Medicaid program does not cover the cost of assisted living, it will likely cover other services related to long-term care that can help seniors continue to live independently and delay the need to move into an assisted living facility.

Some assisted living facilities offer higher level care than others, including skilled nursing services and medical therapies. In these cases, it is possible Medicaid would cover some of the costs associated with these services.

Using Medicare to Pay for Assisted Living

Medicare is a federal health insurance program for people ages 65 and over. Like Medicaid, Medicare does not cover the cost of assisted living directly. Still, it may cover some of the expenses associated with medical care that assisted living facility residents receive.

This means that Medicare will not pay for the costs of room and board or personal care in an assisted living residence, but it may pay for healthcare expenses incurred while living at an assisted living residence.

To learn more about Medicare coverage, visit Medicare.gov.

Using Long-Term Care Insurance to Pay for Assisted Living

Long-term care insurance is designed to help policyholders pay for the costs associated with long-term elder care services like assisted living. Long-term care insurance is private insurance. Monthly premiums for this type of insurance vary widely depending on the health, age, and amount of coverage.

If you're planning on using long-term care insurance to pay for assisted living, you must plan well in advance. The best time to purchase long-term care insurance is between the ages of 40 and 50.

You may be ineligible to purchase this type of insurance after a certain age or if you have certain major health conditions like Alzheimer's, cancer, heart disease, or multiple sclerosis. You may also be ineligible to purchase long-term care insurance if you have a criminal record or a history of substance abuse.

When purchasing a long-term care insurance policy, it is very important that you read all the fine print and fully understand the terms of your agreement. Working with an insurance or elder care attorney when purchasing a long-term care insurance policy can be beneficial.

Using Your Life Insurance to Pay for Assisted Living

If you have an active life insurance policy of $50,000 or more, you can convert that policy into a long-term care benefit plan account. Converting a life insurance policy to a long-term care benefit plan involves transferring ownership from you to an official benefits administrator.

The funds from your life insurance policy will then be put into an FDIC-insured benefit account, and automatic payments will be made to a designated care provider, like an assisted living facility.

The remaining account balance will be distributed to your family members or other beneficiaries after you pass away.

Using VA Benefits to Pay for Assisted Living

The Department of Veterans Affairs (VA) offers several programs to help veterans and their families pay for long-term care services, including assisted living. To be eligible for these benefits, you meet all the following criteria:

• You are signed up for VA healthcare.

• The Department of Veterans Affairs performs a Geriatric Evaluation and concludes that you need a specific service to help with your ongoing treatment and personal care.

• The service or long-term care setting is available near you.

Generally, the VA does not pay for room & board at an assisted living facility but will pay for other basic services and healthcare expenses.

VA Aid & Attendance Pension

Certain veterans may also be eligible for the VA Aid & Attendance Pension, a version of the basic Veterans Pension specifically for veterans with limited income who cannot complete the activities of daily living without the assistance of another person.

These pension benefits will cover some of the daily living costs in an assisted living residence. The amount you can receive from the Aid & Attendance Pension is based on how many dependents you have and if you're married to another veteran who qualifies.

• The maximum yearly Aid & Attendance benefits for veterans with no dependents is $24,610.

• The maximum yearly Aid & Attendance benefits for veterans with at least one dependent spouse or child is $29,175.

• The maximum yearly Aid & Attendance benefits for two veterans who are married and both qualify for the Aid & Attendance Pension program is $39,036.

To learn more about accessing these services, contact your VA social worker or call the VA's toll-free hotline at 877-222-8387, Monday through Friday, 8:00 a.m. to 8:00 p.m. ET.

Using a Reverse Mortgage to Pay for Assisted Living

A reverse mortgage is a loan that allows homeowners to tap into the equity in their homes and use it to pay for things like home repairs, medical expenses, or in this case, the cost of assisted living. The loan is repaid when the home is sold after the borrower dies or moves out permanently. 

Generally, a reverse mortgage is only an option if a spouse or other co-borrower on the loan still lives in the home. 

Contact a reverse mortgage specialist in your area for more information about how reverse mortgages work and whether or not you qualify for one.

Using an Annuity to Pay for Assisted Living

An annuity is an insurance product that can be used as a source of income during retirement. Think of it as a contract between you and an insurance company in which the insurance company makes regular payments or a single large payout to you in the future. You can buy an annuity in one lump sum or over time in a series of payments.

Annuities will grow over time and can provide income later in life when you need to pay for long-term care.

An annuity should be considered an investment, and like all investments, it carries a certain level of risk. Because purchasing an annuity can be complex, it's essential to work with a trusted financial advisor or attorney. 

Using a Bridge Loan to Pay for Assisted Living

A bridge loan is a short-term loan that a senior takes out to fund their move to an assisted living facility while they wait for their house to sell.

Because taking out a bridge loan is risky. This option should only be used if absolutely necessary. If your house doesn't sell as quickly as you thought it would, you will still be on the hook to begin loan repayment, which means you'll be paying for the loan, your home's mortgage, and the costs of assisted living.

Finding a way to pay for assisted living

There are many options available for financing assisted living costs, and seniors and their families often choose more than one way to pay these costs. It's just a matter of finding the ways that best suit your needs and budget.

Research each option and talk to friends and family members who have navigated paying for assisted living. Consider speaking to a trustworthy financial advisor or elder care attorney who can help you decide how best to use or invest your current assets for future long-term care needs.

Lastly, look into your state, regional, or local agencies and organizations on aging. They may have information on additional resources, offer benefits and financial counseling, and help walk you through government programs like Medicaid and Medicare.