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Tags: caring for elderly parents without long-term insurance

Maxime Rieman: Parental Care Without Long-Term Care Insurance

respecting elders
Defying senior stereotypes, former Finnish Olympic gymnastics athlete Kauko Heikkinen, 80, kitesurfs in Storsand, Finland. With the right mindset and financial tools, adult children can take care of their own parents to protect their mental acuity and physical well-being. (Getty Images)

Wednesday, 02 March 2022 02:50 PM EST

With 21% of the U.S. population eligible for or already in retirement over the coming decade, health care industry observers are warning of a looming long-term care crisis. It’s easy to cringe at the high cost of long-term care insurance, which averages around $2,700 per year.

However, without the insurance, you may be on the hook for vastly higher out-of-pocket expenses for nursing home care, the median cost of which is over $100,000 per year for a private room.

These pricey payment options aren’t the only ones you’ll have to choose from, however. There are several savvy ways to subsidize the cost of long-term care, and you can combine multiple strategies that reduce your and your parents’ long-term care expenses.

1.) Pay for long-term care with home equity

Rapidly rising inflation may be hurting many sectors of the economy, but for homeowners, it’s a home equity boon. If you and your parents own a home, you can leverage the equity to help pay for long-term care costs.

Common (and commonsense) wisdom would state that you should only use your home equity for home improvements. However, you can technically use your home equity for pretty much any expense. There are multiple ways to tap into that equity without having to sell your home. The two most common options include:

  • Home equity loan
  • Home equity line of credit (HELOC)

Neither is necessarily better than the other. It really depends on how much money you need in the short term and what your cash flow looks like. HELOCs work just like credit cards, with your home equity serving as your credit limit. You only pay for the amount you spend. Conversely, home equity loans are more like a traditional mortgage.

The only decision left is whether you need to borrow against the equity of your own home or your parents’ home. The latter will only be possible if you have the proper legal rights to do so, or if you can convince your aging parent to do it.

2.) Health savings accounts

Health savings accounts, or HSAs, are an increasingly popular way to pay for health care expenses. They’re tax-advantaged financial accounts that you can use to pay for qualifying health expenses (including any costs directly associated with long-term care). Because HSAs are tax-advantaged, any money going in that’s deducted from your income is tax-free, and any money you use to pay for health expenses is also free to deduct from the account.

Because it’s a savings account, an HSA also accrues interest. The biggest limitations to an HSA are how much money you can put in at any time and who qualifies for HSAs. You may only establish an HSA if you’re enrolled in a high-deductible health plan (HDHP). Similar to other tax-advantaged accounts, there are annual contribution limits. For 2022, those limits are $3,650 for self-only coverage and $7,300 for family coverage.

Given those small contribution limits, HSAs are best established long before you need to use them.

3.) Long-term care riders

The increasingly high cost of long-term care insurance is creating a market for alternative options. One of these alternatives is long-term care riders, which are not exactly new. However, life insurance companies are seeing a market for lower-cost options, making long-term care riders more attractive.

A long-term care rider is essentially an add-on to a life insurance policy that allows you to use death benefits as an annuity to pay for long-term care expenses (and only long-term care expenses). What the rider means or looks like varies depending on whether it’s added to an annuity or life insurance.

With a long-term care rider in place, you reduce the amount of the death benefit but gain access to that money for long-term care expenses. Adding a long-term care rider to an existing life insurance policy will increase the premium cost by several hundred dollars per year.

The restrictions on how you can use a long-term care rider, as well as how much one of these riders will cost, varies across providers. It’s not uncommon for providers to put a percentage limit on how much of the death benefit can be paid out annually. Many life insurance providers also do not allow you to use 100% of the death benefit.

Not all life insurance policies will allow for long-term care riders. In most cases, you cannot add a long-term care rider to a term life policy, for example. 

Long-term care is about to get real

According to the U.S. Administration on Aging, two-thirds of 65-year-old Americans will likely need at least some long-term care. Unfortunately, you can’t rely on Medicare for these expenses, as Medicare does not cover long-term care needs. Considering the median retirement account for baby boomers is slightly over $200,000, the financial burden for long-term care will likely fall on Gen X and millennial children. Plan ahead for how to care for aging parents and grandparents before the need becomes an emergency situation.
Maxime Rieman is product manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.


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With 21% of the U.S. population eligible for or already in retirement over the coming decade, health care industry observers are warning of a looming long-term care crisis.
caring for elderly parents without long-term insurance
Wednesday, 02 March 2022 02:50 PM
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