What are the options for covering long-term care?

Young male care worker helping elderly woman off bed in a nursing home

Many seniors worry that if they live too long, they won't have enough money to cover their expenses

(Image credit: 10'000 / Getty Images)

The good news: We are living longer. The not-so-good news: That often means increased long-term care costs, as expenses stretch out over more and more years.

In fact, said The Washington Post's Michelle Singletary in a recent column, many seniors now "seem less afraid of dying than of living so long that they'll eventually need help with basic activities, such as preparing meals, bathing and dressing." That is mainly because "they worry they won't have enough money to cover this expense." And it is far from an unreasonable concern, as according to Genworth's 2023 Cost of Care Survey, the average annual cost for a private room in a nursing home is $116,800," said Kiplinger.

Still, "the earlier you start planning, the more control you have over your future," the outlet added. Here are some strategies you may turn to for covering these costs.

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Long-term care insurance

One option for covering care-related costs is long-term care insurance, which "typically pays for care if you have a chronic illness, have dementia, or a severe cognitive decline, or can't do at least two out of six 'activities of daily living' without assistance: bathing, dealing with incontinence, dressing, eating, getting on or off the toilet, or getting in or out of a bed or chair," said NBC News.

This option is "one of the most straightforward," and "it can be used to cover a wide range of costs," said CBS News. However, it is necessary to qualify for coverage, "so the earlier you can purchase the policy, the better." As you get older, you are more likely to acquire an existing health problem that may disqualify you.

There is also the cost to consider: "Premiums for a healthy 55-year-old woman can range from $1,500 to $7,000 a year, depending on the benefits, according to the American Association for Long-Term Care Insurance," said NBC News. For men, premiums "are generally lower," as they typically "don't live as long and are less likely to use the benefits."

Annuities

Annuities, which are effectively contracts between the purchaser and the insurance company that can offer guaranteed income, are another choice for covering the costs of long-term care.

There are a variety of different types of annuities, but one option is "an income annuity that includes a provision to increase your payout in the event you need long-term care," said Kiplinger. Though "the payout may not cover the full cost of care, and the added cost of this provision, known as a rider, can reduce the standard payout from the annuity," retirees still "can collect annuity payments while they're alive regardless of whether they need long-term care."

Another benefit is that they are "easier to purchase at more-advanced ages" compared to traditional long-term care policies, said Kiplinger.

Health savings accounts

If you contributed to a health savings account (HSA) while still working, those funds could come in handy for long-term care costs. HSAs "allow people with high-deductible insurance plans to save pre-tax dollars for future medical expenses — even if the money isn't spent for years or decades in the future," said Care.com, citing Ralph Barringer, CFP, a certified long-term care consultant and financial planner at Northwestern Mutual.

HSA funds can be spent "on any IRS-approved medical expense for yourself, a spouse, or a dependent," such as "medical equipment, like wheelchairs and walkers, as well as copays for appointments," said Care.com. Those who meet certain requirements may also be able to use HSA funds on things like nursing and therapeutic services.

Proceeds from a reverse mortgage or home sale

If you "have a sizable amount of home equity," a reverse mortgage could allow you to "pull cash out of [your] home's value to cover the costs of in-home care, assisted living, or other types of long-term care," said CBS News. And "unlike other home equity loan options, a reverse mortgage loan doesn't have to be repaid until the home is sold" or you die. That said, "reverse mortgages have been criticized for their high closing costs and interest rates," said Care.com.

You might also consider selling your house and using the proceeds to help fund care costs. Of course, this does entail giving up your home, so it may only be a good option if "you feel comfortable with the idea of moving to a care facility instead of receiving home care," said Kiplinger.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.