Financial Planning – Part 1
Assisted Living: How exactly do we pay for it?
OK, so you’ve talked with Mom or Dad about the necessary choices for their future and everyone is in agreement, whether it be an assisted living facility or nursing home. Naturally, each one of us in this situation is probably thinking, “How in the world will we afford this?” Let’s dive into this subject to give some perspective and insight to help answer this very question.
In Florida, the average cost of assisted living is about $3,150 per month according to the 2015 Genworth Financial cost of care survey. For most of us, this is more than what is considered affordable and so the question remains. So we did some research, which by the way we encourage you to continue to do after reading this, and found some different ways you can pay for such services. Before getting into the nitty-gritty of financials, it’s highly recommended that you see a financial advisor before making any decisions. These options are just that, options, and they do not take into account your specific financial situation (though we wish we could predict that for you!).
Let’s go over three options that may be available to you right now:
Life Insurance Policies: There are a number of ways to structure the policy to help pay for assisted living or any other elderly care. But before you change anything, you need to keep in mind who the beneficiary is and determine their level of need before making any decisions.
- You can cash out the policy. This would be a good option if, financially, you and your family would be okay when your parent(s) passes. Generally, companies pay out 50-75% of the value which you can then use to pay for your parent(s) care.
- You can sell the policy to a third-party company. That company would buy out the face value of the policy, which is about 50-75%. They would then pay the remaining payments of the policy until the policyholder passes.
- Another option is a “life assurance benefit” which will let the policyholder switch from life insurance to long-term care insurance. This may payout a little less (anywhere from 15-50%) but depending on your level of financial need, it may be enough to help with the monthly rent of assisted living.
Home Mortgage: There are a number of ways to use the house that your parent(s) is currently living in to help pay for assisted living for the future.
- The easiest option is to just sell or rent the house. If your parent is living alone and you don’t have any emotional ties to the home, selling or renting the home can be a simple solution to pay for or help pay for assisted living. If you decide to sell the home and you don’t have time before needing to put your parent into an assisted living facility, then there are loan options, like a Bridge Loan. We will go into this a little more later.
- If you have a parent that will remain in the home while the other moves to an assisted living facility, you can consider a Reverse Mortgage. A Reverse Mortgage can enable you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills. As I said, this can be a good option if you have a parent that is going to remain in the house but it can be complicated so, again, meeting with a financial advisor before making any decision is important.
- There are also Home Equity Lines of Credit. These act similar to a reverse mortgage but do not have the same requirements as a Reverse Mortgage and may be easier to get depending on your own personal situation.
Private Pay: This can come in the form of savings, IRAs, pensions, 401k or Social Security. For each of these, there are a number of possibilities to dole out the money to pay for assisted living. There are also options like annuities where you can place yours or your parents’ money to get a set monthly payment that can then be used for the monthly cost of living at an assisted living facility.
Each of these are options that you may already have the ability to use to help pay for assisted living for Mom or Dad. This is a small list but keep tuning in and we will review options that you could apply for to receive financial assistance for your loved ones.