Long-term care in America is expensive, and if you’re not prepared to pay for it, you could find your hard-earned lifelong savings disappearing quickly.

Understanding long-term care costs and financial planning for eldercare is crucial for preserving wealth while you seek assistance for the activities of daily living you can longer do by yourself due to chronic illness, disability, injury or old age.

How expensive is long-term care?

The U.S. Department of Health and Human Services states that costs of care vary depending on your needs, where you live, and where you seek long-term care services. But you can generally expect to pay the following rates for long-term care:

  • Semiprivate room at a nursing home: $225 per day, or $6,844 per month
  • Private room at a nursing home: $253 per day, or $7,698 per month
  • Care in an assisted living facility: $119 per day, or $3,628 per month
  • Home health aide: $20.50 per hour
  • Homemaker services: $20 per hour
  • Services at an adult day health-care center: $68 per day

As you can imagine, if you don’t have a financial plan in place for long-term care, it may eat up your nest egg or other assets, or you simply may not be able to afford it.

Let’s look at the most common financial products you can use to plan and pay for long-term care.

Long term-care insurance versus term life insurance

The most popular and perhaps most widely available financial product for long-term care is long-term care insurance (LTCI). This financial product is popular for its flexibility, reliability, and the amount of care coverage it gives you.

There’s just one problem: LTCI is too expensive for many Americans, with an average price tag of over $2,700 per year, and the cost is rising.

If you’ve investigated LTCI, you may have come across mentions of term insurance, term life insurance, or life insurance. LTCI and these financial products are very different.

What’s the difference?

While LTCI is set up to pay for long-term care expenses when the policyholder is still alive, life insurance is set up to pay out a death benefit to a beneficiary once the policyholder dies.

That said, in a way similar to how life insurance works, if an LTCI policyholder dies while the policy is still in place, the insurer will pay a death benefit to a designated beneficiary.

So, life insurance cannot pay for the long-term care of the policyholder since the insurer only pays out funds after the policyholder dies. Conversely, LTCI can pay for the long-term care of the policyholder.

Pro tip! The beneficiary of a life insurance death benefit can use the benefit to pay for their own long-term care. You may want to include life insurance in your long-term care financial plan if you want to provide long-term care assistance to a loved one after your death.

To learn more about LTCI and life insurance, including the advantages and disadvantages of using them to fund long-term care, head over to this article.

How to pay for long-term care without insurance

Don’t fret if you can’t afford to pay expensive LTCI premiums out of pocket. There are other ways you can pay for long-term care.

Can you take money out of your IRA?

If you have an individual retirement account (IRA), you can take money out of it to pay for long-term care. However, you’ll have to pay a 10 percent early-distribution penalty on withdrawals you intend to use to pay for care unless you’re 59 and one-half or older. And you’ll have to pay income tax on your withdrawals.

With a Roth IRA, you can withdraw your own contributions without penalty to pay for long-term care as long as you’re 59 and one-half or older also. Before you withdraw funds, know that you’re shrinking your retirement nest egg.

Can you use Social Security?

Yes, you can. Administered by the Social Security Administration, Social Security gives seniors who’ve paid into the program supplemental income for retirement.

Seniors can use this income to pay for home care, residential care, or adult day care. However, Social Security checks usually aren’t enough to cover long-term care costs on their own.

What about HSAs?

Health savings accounts (HSAs) are another popular option for those looking to fund long-term care without breaking the bank. To learn more about HSAs for long-term care, click here.

Should you use a reverse mortgage?

If you’re 62 years or older and need quick cash to pay for long-term care, taking out a reverse mortgage is another option. With a reverse mortgage, you can access the wealth you have in your home equity through payments the lender makes to you.

And you don’t have to pay back the loan until you sell your home, move away for good, or die (your estate pays back the loan with proceeds made from the sale of your assets). Check out this post to learn more about using reverse mortgages to pay for long-term care.

So, how much can you borrow from a reverse mortgage? In general, you cannot take out more than 80 percent of your home equity. And according to Unison, as of 2018, you cannot borrow more than $679,650, even if that amount is under 80 percent of your home equity.

Pro tip! Reverse mortgages are a great option to pay for long-term care if you don’t have heirs to leave assets to since your assets must be sold to pay back the loan after you die.

Should you use annuities?

Annuities are contracts between annuity purchasers, called annuitants, and insurance companies. These contracts require insurance companies to make immediate or future payments to annuitants in exchange for a either a lump sum payment or a series of payments over a specified term.

Annuities are popular among individuals who want to supplement their retirement income or want help paying for long-term care with period payments from an investment that enjoys tax-deferred growth.

What’s the difference between annuities and insurance?

With an annuity, you will eventually have access to funds from your annuity investment, whether or not you need long-term care — guaranteed.

With insurance, you may end up putting thousands of dollars into it without ever using it, and you won’t get back what you paid in premiums if your insurance company cancels your policy.

Also, life insurance policies pay out when you die, as long as your policy is still in place, whereas insurance companies make periodic payments to you from your annuity investment in the payout phase.

If you want to learn more about annuities, head over to this article.

Should you use a trust?

Trusts are fiduciary agreements between grantors and appointed trustees to hold financial assets in trust for beneficiaries. Grantors can choose their beneficiaries (which may include grantors themselves) and decide what assets beneficiaries will receive, when they’ll receive them, and how they can use them.

Charitable remainder trusts are often the preferred trust for long-term care coverage. These tax-exempt irrevocable trusts can help reduce taxes by donating whatever remains of the trusts to charities of their grantors’ choice after disbursement to beneficiaries.

Disbursement happens over a specified time, creating sources of income for beneficiaries that they can use to cover long-term care costs. Check out this article to learn more about trusts.

Does a trust protect your assets from Medicaid?

According to Asset Protection Planners, a Medicaid trust can protect your assets from a Medicaid spend down by dissociating you from your assets and thus freeing them from Medicaid eligibility consideration. For these trusts to work, you have to set them up properly and early — your assets have to be in the trust five years before you apply for Medicaid.

What about government programs?

If you have no savings or valuable assets to turn into cash to cover long-term care, you aren’t out of options yet.


You may be eligible for federal- and state-sponsored Medicaid long-term care benefits. Designed to help individuals with low income and little to no assets pay for qualified health care and long-term care expenses, Medicaid can help cover the costs of long-term care services received at home or in eldercare facilities.

Government employees

The government offers the Federal Long-Term Care Insurance Program (FLTCIP) to its employees and qualified relatives. Head over to the FLTCIP website to check your eligibility and to apply.


Though not designed with long-term care in mind, Medicare offers limited long-term care coverage to individuals who meet very specific long-term care needs. You can learn more about Medicaid, the FLTCIP, and Medicare for long-term care here.

The bottom line

The American Association for Long-Term Care Insurance states that about 70 percent of us will need long-term care at some point after we turn 65. Keeping the high costs of care in mind, we can’t afford to ignore the possibility that we’ll need it.

So as early as we can, we should put a financial plan in place to make sure we don’t lose most or all of our money and assets when we need care to keep living quality lives.

Talk to a certified financial planner (CFP) today to help you decide what financial options are best to help you meet your long-term care needs. To find a CFP, click here.

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