Alternatives to Long-Term Care Insurance

Are you looking for alternatives to long-term care insurance? If so, you’re in the right place. 

The population of the world is aging at a rate much faster than ever before. The good news is that people are living longer than they ever did before – but the bad news is that about 70% of all people will require long-term care at some point in their lives, according to the U.S. Department of Health and Human Services. In-home care is less expensive but still will take a serious chunk out of your savings.

Unfortunately, that long-term care comes at an exorbitant cost. The average nursing home facility costs around $7,756 per month, on average – and that’s for a shared room. In-home care is less expensive but still will take a serious chunk out of your savings.

Many families rely on long-term care insurance to make sure their loved ones and heirs are well provided for as they enter into their golden years. However, there are also several good alternatives to long-term care insurance that you may want to consider instead. 

Why Buy Long-Term Care Insurance? 

Before diving into the alternatives that exist to long-term care insurance coverage, it may be helpful for you to understand what long-term care insurance actually is. 

This is a very specific type of health insurance meant to help people pay for long-term care, such as in a nursing home or a home health care setting. This kind of insurance covers a variety of issues and people in a variety of age groups.

While long-term care insurance coverage isn’t always the best option for everyone – hence the need for alternatives, as we’ll tell you more about below – the need for long-term care should not be ignored. After all, just about everyone will need it. Many seniors make the mistake of assuming that their friends or children will have their backs as they age – but you never know what might happen in life and make this plan impossible.

Having an idea of how you will pay for long-term care expenses, whether those are due to cognitive impairment, aging-related injuries (like falls) or illnesses, or terminal diseases, is important. You’ll need to have a way that you can go about your activities of daily living and usually, paying for these expenses out of pocket is not an option. 

Even if you don’t plan on living in an assisted living facility in your lifetime, you may want to weigh the cost of long-term care insurance with the daily benefit you might receive. Most policies will even cover expenses for an in-home caregiver and most are also tax-qualified, offering an additional benefit for long-term care needs instead of just socking money away in a savings account.

Long-term care insurance premiums can be expensive, but for most people, it is the most cost-effective option, especially if you purchase it before you turn 60. You’ll pay an average annual premium of less than $3,100, according to statistics from the American Association for Long-Term Care Insurance. 

That said, long-term care insurance is still expensive – and it might not be the best option if you have certain pre-existing conditions. If you have a more complicated health history, one of the alternatives to long-term care insurance might be a better option instead. 

Alternatives to Long-term Care Insurance

Here are some of the most popular alternatives to long-term care insurance – be sure to weigh your options carefully before deciding which is best for you. 

1. Short Term Care Insurance

Short-term care insurance premiums, sometimes referred to as convalescent insurance, offer around $150 per day of healthcare coverage for a year or yes. Obviously, this is not the best kind of insurance to have if you want to be covered for more permanent care or long-lasting living situations. 

However, since there’s not as much of a time commitment for the insurance companies to adhere to, the premiums tend to cost a lot less. You might find yourself paying less than half of what you would for long-term care insurance. 

These policies also tend to have no elimination periods, or very short ones if they have them at all. That way, there’s no delay in receiving your benefits. You can often file multiple claims and still receive coverage in the future. 

This is a good option for people who are rejected for long-term care insurance due to health reasons – again, this can be an issue when it comes to planning for long-term care.

2. Annuities with Long-term Care Riders 

This alternative to long-term care insurance is a bit more complicated than any of the others, but it’s still a valid option nonetheless. 

If you’re rejected by a long-term care services insurance provider, you can try to take out an annuity with a long-term care rider. You’ll invest money in the annuity and you can then use that money, tax-free, to pay for care as defined under the contract. That way, you will receive a steady monthly income that you can use to pay for your care, whatever it may be. 

Because the medical underwriting process for this kind of insurance doesn’t involve as much as it does for long-term care insurance, you’ll likely be able to apply faster (and easier, if you have certain health conditions). Plus, you’ll be given greater flexibility in how you choose to use the benefits. 

3. Critical Care/Critical Illness Insurance 

Another insurance policy that’s good to consider is critical care or critical illness insurance. This kind of insurance offers cash payments to people diagnosed with serious illnesses like cancer, Alzheimer’s disease, or stroke. These can sometimes also provide monthly or daily benefits for continuing care, inpatient rehab, and other services, in addition to the lump-sum payments.

These policies usually offer benefits for around six months to several years, and because the coverage periods are again much shorter than those for long-term care insurance, you’ll likely find that the premiums cost less, too. Plus, these can cover you regardless of your age or status – they’re meant to cover people when health problems require expensive treatments or services.

The premiums tend to be affordable. For example, a monthly plan from Guarantee Trust might cost just $110 a month but provide insurance coverage for around $2,000 a month for 24 months. Of course, as with most other kinds of insurance policies, you will need to undergo a thorough health history and exam. Illnesses or injuries that are from the past (even those that present new problems in the future) likely won’t be covered. You’ll only receive benefits for recent issues that were unknown when you first applied for critical care or critical illness insurance. 

4. Deferred Annuities 

You may be able to plan for long-term care by using a deferred fixed annuity. This will allow you to put money down before you retire in return for a monthly sum payment when you reach a certain age. 

For example, if you’re 60 years old, you might consider purchasing a deferred annuity for $100,000. Once you reach a certain age – often, it’s 72, but that’s not always the case), you’ll begin receiving distributions. The amount will depend on the type and contract terms of your annuity. 

This kind of annuity is different from an annuity with a long-term care rider because it is not technically meant only for long-term care. It can be used for other expenses, too, namely that it offers significant peace of mind in keeping you covered for just about anything that might happen post-retirement. 

5. Asset-Based Policy 

An asset-based policy is another option you might consider as you are looking for long-term care. This is similar to a blend of life insurance policies and long-term care insurance. It can be used to pay for a nursing home, tax-free, or it can be used as a tax-free benefit to a beneficiary. You’ll need to have some start-up cash to fund one of these policies but you’ll pay significantly lower premiums.

Plus, you can even fund this kind of policy with a lump sum or over a certain period of time, like five years, without worrying about your premiums rising. It offers less of a death benefit but it will prevent the likelihood of sky-high premiums. Plus, if you decide you no longer want the policy, most will return the majority of your premiums to you as cash. 

6. Savings Accounts

Do you have a large nest egg saved up? If so, you may be able to rely on your retirement or investment accounts to pay for your care. This of course will depend on multiple factors, such as your health, age, and how much you paid in – and keep in mind, it might not cover all of your expenses. You may want to research local long-term care costs to determine whether you will be able to afford this, especially if you have expensive health considerations to make. 

Of course, there are other unique ways you can craft your own long-term care solution, too, such as pursuing a reverse mortgage or home equity option for homeowners. 

7. Medicaid

Unlike Medicare, Medicaid is a federal health insurance program that is designed for low-income individuals. It does pay for some forms of long-term care in certain situations – often, it will pick up the tab for nursing home care only but not in-home care.

The bad news about Medicaid is that you can only tap into it after you’ve exhausted (or mostly exhausted) your other assets. 

8. Life Insurance 

Ultimately, the goal of life insurance is to protect the people you love from financial hardship stemming from your unfortunate demise. However, there are certain policies that offer accelerated death benefits, which let policyholders who have terminal diagnoses or chronic illnesses receive their benefits while they are still living.

Most allow policyholders to access 25 to 95% of this benefit, according to the American Council on Life Insurance. Sometimes, you may even be able to access the full benefit – as long as you purchase a separate rider or pay a service fee, of course. 

9. Health Savings Accounts

Also known as an HSA, a Health Savings Account will let you make tax-deductible contributions that you can use to pay for expenses related to healthcare for up to $7,000 per year for a family (but if you’re older than 55, you can put away an extra $1,000). The limit is $3,500 for an individual. If you don’t use all that money in a year, you can continue to invest it and it will grow tax-free. 

Just keep in mind that if you decide to use the money in your HSA for non-medical purposes, you are going to have to foot the bill for income tax – as well as a 10% penalty if you’re younger than 65. Otherwise, there’s no tax liability for using the money for healthcare. 

10. Veteran’s Benefits 

Did you serve in the military? If so, you may want to research options through your veteran’s benefits, particularly if you have service-related disabilities. If you served in Vietnam, you don’t even have to have a service-related disability – you may qualify for benefits if you were exposed to Agent Orange and later developed health problems. 

There is also a pension benefit through the Veterans Administration known as Aid and Attendance. This helps provide money for daily living tasks and their associated care. 

How Much is a Long-Term Care Policy Per Month?

Many people are deterred by the thought of how expensive a long-term care insurance policy might be per month. After all, once you take out a policy, you will be responsible for paying monthly or annual premiums that cover you in the event that you need to pay for some form of long-term care in the future. 

The good news is that premiums are often tax deductible – just as other unreimbursed medical expenses might be. As long as your long-term care insurance expenses exceed 7.5% of your adjusted gross income, you can deduct these fees on your taxes. Often, the same (or similar) tax rules apply when it comes to the many alternatives to long-term care insurance, too, like critical care insurance. 

Do some research into traditional long-term care policies as well as the alternatives. You may even find that not just one of these solutions is best for you but rather hybrids of multiple options. Meeting with a financial advisor or tax advisor is a good way to figure out what type of long-term care solution is right for you as well as what kinds of tax implications might be involved.

Ultimately, paying for long-term care insurance or one of its alternatives is a smart investment. In doing so, you’ll be able to prepare for whatever life throws your way – and you will be able to age in comfort. 

Back to Blog

Leave a Reply

Your email address will not be published. Required fields are marked *

Request a quote