6 Ways To Fund Long-Term Care

6 Ways To Fund Long Term Care
Fortify your financial future and protect your retirement from the staggering costs of long-term care with these proactive solutions and strategies.


What’s your plan to pay for long-term care (LTC) in your later years of life?

The U.S. Department of Health and Human Services says 70% of people over age 65 will need some type of long-term care in their lifetime . This includes everything from home health aides to nursing homes, assisted living facilities, memory units for those with Alzheimer’s or dementia, and more.

Long-term care is also known as custodial care, which means that it doesn’t generally require skilled nursing care but rather help with activities of daily living (ADL), i.e. bathing, eating, dressing, toileting, transferring in and out of a chair or bed, and maintaining continence. Even if you can afford the hefty expense of long-term care, you don’t want to wipe out your savings or nest egg to get the quality care you need and deserve.

If you don’t plan ahead of time, long-term care can be a financial drain that eats up a significant portion of the money you set aside for your heirs.

That’s why it’s time to learn the best ways to fund long-term care today.

6 Options to Fund Long-Term Care

You may decide to pursue one or several of these ways to protect your retirement and get the LTC you expect:

#1. Self-Pay Using Personal Savings

Paying for long-term care yourself can be the easiest and most flexible choice but not necessarily the wisest.

Due to rising healthcare costs it can be extremely difficult to anticipate how much savings you’ll require to cover the care you’ll need. And you can’t rely on Medicare, because it doesn’t cover long-term care. You can see here the cost of care in all 50 states, with heat maps indicating where LTC is more or less expensive.

To give you an idea of long-term care expenses, consider the national median price for a:

  • Home health aide: $25/hour
  • Assisted living facility: $4,000/month
  • Private room at a nursing home: $97,000/year
  • Lifetime of care for dementia: $350,000+

The average use of long-term care services is around three years; the average stay in a nursing home clocks in at 2.5 years.


You can only expect those costs to rise. That’s why it’s essential to plan for these expenses and protect your investments and the inheritance you wish to pass down

Traditional long-term care insurance policies have been on the market the longest, but is one right for you?

#2. Traditional Long-Term Care Insurance

Long-term care insurance provides coverage for home care, nursing homes, adult day care, hospice, home modifications, and much more.

Like most types of insurance, your annual premium depends on the amount of coverage you choose, how long it will last, and when you’ll be able to start receiving benefits.

Long-term care insurance is cheapest when you’re young and healthy, and generally becomes more expensive as you get older. In fact, this has been one of the biggest problems with the coverage. Insurance companies historically under priced their policies due to a lack of claims experience, which often resulted in double-digit annual rate increases.

Another downside of LTC insurance is the risk of paying premiums for years and never needing the benefits for which you’ve essentially pre-paid. But this is the nature of insurance. You are paying to transfer the risk from you to the insurance company.

As the industry has evolved, new options are available. For example, there may be LTC options with an existing life insurance policy.

#3. Life Insurance

Don’t let your existing life insurance policy lapse when your kids get married or move out of the house. Your life insurance policy is an asset which may be able to fund your LTC in a few ways. You should check your policy to see if it has features such as a/an:

  • Accelerated Death Benefit (ADB) . This allows you to receive a tax-free advance on your life insurance death benefit so you can pay for long-term care. You may qualify if you’re terminally ill, have a life-threatening diagnosis, need care for an extended period of time, move to a nursing home permanently, or become incapable of performing basic ADLs.
  • Life Settlement . If you’re 70 or older, you may have the option to sell your life insurance policy for its current value to pay for long-term care. Just keep in mind that proceeds are taxable and you may have little or no death benefit left for your heirs when you pass away.
  • Viatical Settlement . This is similar to a life settlement except it’s only available to terminally ill policyholders and those with less than two years life expectancy. The policyholder will sell the life insurance policy to a third party for a percentage of the death benefit. They will have tax-free money to pay for their LTC while alive.

The third party then owns the policy, becomes the beneficiary, and assumes all premium payments. It will also receive the full death benefit upon your passing, which means means there will be no money left for beneficiaries.

You may be more interested in the new breed of hybrid policies marrying life insurance with long-term care.

#4. Hybrid Policy Combining Life Insurance with Long-Term Care

A hybrid policy offering life insurance with LTC provides coverage when Medicare and your regular health insurance plan will not cover the expenses.

Basically, your premiums will go towards a pot of money earmarked for your long-term care expenses. Should you need this money, you’ll be able to draw a tax-free monthly maximum amount to pay for your care.

Your death benefit will be reduced by the amount you use to pay for your LTC expenses. If you don’t withdraw all of your LTC benefits, your beneficiary will receive the remainder as a tax-free payout upon your death.

Your beneficiary will receive a full tax-free death benefit if you pass away prematurely and never use your LTC benefits.

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Because of this payout system, LTC insurance and hybrid policies will require a comprehensive check of your medical history to comply with underwriting guidelines.

Another type of hybrid policy may be worth considering.

#5. Hybrid Policy Combining Annuities with Long-Term Care Insurance

With this route, you’ll either make a single lump sum payment or a series of payments and your investment grows tax-free at a fixed rate of return. In this low interest rate environment, these contracts have become less attractive.

You can purchase an immediate annuity or a deferred annuity. The immediate annuity starts paying you monthly amounts right away, which may or may not cover all of your LTC expenses now and in the future. The deferred annuity acts a little differently. The payment(s) you make into the deferred annuity will be split into a fund for LTC expenses and a fund to be used however you like. The contract outlines how much you can take as a monthly payment for LTC expenses and how much you can take annually from the cash fund. To qualify for a deferred annuity, you must satisfy certain health criteria.

When you incur LTC expenses, you’ll begin to receive a steady stream of disbursements over a set period of time (or the rest of your life) to cover the expenses. These withdrawals will draw down your LTC pool of money. But you may still receive LTC benefits even if you deplete your account value.

This option offers fewer risks as you’re guaranteed to at least recoup your original investment–or leave it to a beneficiary–if you never need long-term care.

These types of annuities can be more difficult to find whereas the next idea is growing in popularity.

#6. Health Savings Account

If you have a high-deductible health insurance plan, you may be eligible to open a health savings account (HSA).

HSAs are funded with pre-tax dollars and are not subject to taxes at withdrawal when you use them for qualified health care expenses, including long-term care and long-term care insurance premiums.

The maximum contribution limits for 2020 are $3,550 for individuals and up to $7,100 for people with family insurance plans[ *]. What’s even better is the extra $1,000 in catch-up contributions you can make after you turn 55.


The money in your HSA is allowed to roll over and accumulate each year so it’s smarter to open one sooner rather than later if you can.

Click here to learn more about where HSAs fit in your retirement plan.

Work With Experts To Include Long-Term Care In Your Financial Plan

You know it’s never too early to plan for retirement and the same can be said about anticipating your long-term care expenses. That’s why no financial plan for retirement would be complete without a strategy to pay for long-term care.

While these options each protect your retirement fund in different ways, one (or more) strategy may be better than another for your unique financial situation.

So you’ll want an expert in your corner who not only understands your long-term goals, wishes, and portfolio but also has access to predictive tools from leading data analysts to more accurately assess how much you’ll want saved and devoted to LTC.

Here at Castle Wealth Management, we’ll navigate the course for our clients to follow. We know a well-diversified portfolio, a long-term investment horizon, and a documented plan enables our clients to reach all their goals.

Are you finally ready to discuss your retirement and long-term care strategies? Fortify your future and schedule your consultation today.



Melissa Gannon photo resized

Melissa Gannon, CDFA®, CFP®

Melissa Gannon joined the firm in October 2016 as a Financial Planner. In 2021, she became a Principal of the firm and the Manager Financial Planning. Melissa is a member of the Wellington Chamber of Commerce, the National Association of Divorce Professionals, and the Financial Planning Association.

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