Although some people will use long term care insurance coverage to fund the costs of healthcare later in life, this solution may not suit everyone. Which alternatives to LTC insurance can be used to pay these costs if needed and what are their advantages and disadvantages?
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Funding Long Term Care via Life or Viatical Insurance Settlements
Those with life insurance coverage may be able to use their policies to free up cash that could be used to pay for long term care. This would involve selling a policy for a cash settlement sum either to meet general needs or on a viatical basis (i.e. when the policyholder is terminally or chronically ill).
The advantage to this solution is that a consumer can use a policy that they already have in place to fund care costs rather than taking out separate LTC coverage. But, this could mean the end of the life coverage itself, leaving no insurance payout after death. Also, the payments given on a settlement are unlikely to equal the value of the policy.
Longevity Insurance May Pay for LTC Costs
Those that worry about having enough retirement income later in life may take out longevity insurance. This kind of coverage pays out if the policyholder lives to a specified age (i.e. 80) and can provide a useful source of income late in retirement when higher/new costs, such as long term care, may become an issue.
This can work out well for some. If an individual needs LTC later in life, their coverage will give them a timely income boost. However, this only really works if the policyholder needs care after their longevity payout age. They may not be able to access their funds before that point so there are no guarantees of cost coverage.
Using Reverse Mortgages to Release Equity to Pay for Long Term Care
Homeowners could also look at using reverse mortgages to pay for LTC. This would allow them to free up the necessary cash to pay for the healthcare they may need by releasing some of the equity they have tied up in their home.
For some this is a simple way of using their property investment to fund financing needs. Others may not find that it works as well. Having to move out of a property to go into full-time care could mean that the loan needs to be repaid and some may not be able to raise enough from their home to meet costs. This could also reduce the value of their estate over time.
Savings, Investments and Annuities Could Fund Long Term Care
Some will simply choose/have no other choice but to fund their LTC costs from their general retirement savings. They may, for example, use annuities to provide an income later in life or even take out products that come with a long term care rider.
This may save money for some as they will not have to pay for separate LTC protection. But, it may eat into general retirement income over time and may reduce the value of their estate. In some cases, savings income may also not be high enough to cover long term care for as long as it is needed.
Relying on Medicare and Medicaid for LTC
It is, of course, possible not to put formal measures in place to cover potential long term care costs. Many people will not need this kind of healthcare at all and some that do may be given help from family and friends. Some also assume that Medicare and Medicaid may help cover their needs.
This may be the cheapest route to take but, if long term care is necessary, Medicare and Medicaid may not cover all associated services and costs. The individual may also be given less choice in terms of the care they are given and where they receive it.
Those that do choose to plan ahead for long term care are likely to make a decision on how to fund these costs based on their personal preferences and finances. Some will not see the need to set a formal solution in place at all; some prefer to do so just in case they do need funding in the future.
