How to Pay for Long-Term Care

Quick Answer

Many Americans will need long-term care as they age, but paying for it can be costly. You can use a combination of personal funds, government assistance, long-term care insurance and financing options to pay for long-term care.

Woman researching how to pay for long term care.

As you age, you'll likely need long-term care to help with illness (such as dementia) or activities of daily living, such as bathing and dressing yourself. There are a variety of ways to pay for long-term care, including using personal funds, tapping government programs and getting private financing.

How Much Does Long-Term Care Cost?

Long-term care services may assist with both health issues and "activities of daily living" (ADL), which include eating, bathing, dressing and using the toilet. The type of long-term care you need can vary widely, from adult day care or homemaking services to full-time nursing home care.

Private health insurance and government insurance, such as Medicare, does not cover most of this care. Generally, these plans pay for skilled care from a nurse or other licensed health care professional for a limited period. (Medicare covers skilled care for just 100 days, for instance.)

In 2021, the average cost of long-term care was:

  • Adult day care: $1,690 per month
  • Homemaker services: $4,957 per month
  • Home health aide: $5,148 per month
  • Private room in a nursing home: $9,304 per month

Will Insurance Pay for Long-Term Care?

Some insurance companies offer coverage specifically to pay for long-term care. Policies vary, but generally cover both health care and non-medical assistance, including:

  • Home health care
  • Assisted living
  • Nursing homes
  • Adult day care
  • Respite care for a family caregiver

There are two kinds of long-term care insurance.

  1. Traditional or stand-alone policies provide long-term care coverage in return for monthly or annual premiums. This is the most affordable type of long-term care insurance. However, premiums can rise every year, becoming prohibitively expensive.
  2. Hybrid long-term care insurance costs more, but offers more advantages. Also called linked-benefit or combination insurance, it includes permanent life insurance or an annuity plus long-term care coverage. You pay a lump sum or annual premium, guaranteed not to increase. When you die, any remaining long-term care benefit balance goes to your heirs.

Costs for long-term care insurance vary widely depending on factors including age, gender, health status, insurer and coverage. (For example, you can buy nursing home-only coverage or coverage including in-home care.) For comparison, the American Association for Long-Term Care Insurance (AALTCI) estimates a traditional policy with $165,000 in benefits purchased at age 55 costs $950 annually for a man and $1,500 annually for a woman. A hybrid policy with $180,000 in long-term care benefits and a death benefit of $120,000 costs $4,625 annually for a man and $4,600 for a woman.

Ways to Pay for Long-Term Care

Personal funds, government programs and private financing are the three main ways to pay for long-term care.

Personal Funds

Personal savings, retirement accounts, pension, Social Security income and investment income can help pay for long-term care. To manage these funds wisely, make (or revise) your retirement budget taking the cost of long-term care into account.

Think about ways to pad your nest egg. For instance, you may need to delay retirement to maximize your Social Security benefits, or increase contributions to retirement accounts. Those aged 50 or older can make "catch-up" contributions above normal annual limits to 401(k), 403(b), IRA and SIMPLE IRA plans.

Do you own your home? Depending on the amount of equity you have, selling it and downsizing to a smaller place could provide plenty of funds for long-term care. A move could benefit you in more ways than one. For example, if your spouse is moving into a nursing home, you may prefer a small apartment to a big house.

Government Programs

Regular Medicare doesn't cover long-term care, but the following government programs may.

  • Medicaid: Medicaid is a federal and state program that provides health care—including long-term care, in some cases—for low-income individuals. (Your state may have a different name for Medicaid.) Eligibility requirements vary by state, but you may have to spend down your assets to qualify.
  • Veterans benefits: Military veterans may qualify for long-term care, either at home or at a facility, through the US Department of Veterans Affairs (VA). Learn more at the VA website or by contacting your local VA medical center.
  • Program of All-Inclusive Care for the Elderly (PACE): A joint effort of Medicaid and Medicare, PACE provides long-term care—generally at home—for people who require nursing home-level care. PACE is not available in all states. Learn more with the PACE plan finder or by calling Medicare.

Private Financing

In addition to long-term care insurance, you can finance the cost of long-term care using home equity, life insurance or an annuity.

  • Reverse mortgage: Do you own your home free and clear or have a lot of equity? In a reverse mortgage, your home serves as collateral for a loan that's typically tax-free. You must be 62 or older and will have to pay closing costs and mortgage insurance. No payments on the reverse mortgage are due while you live in your home, but if you die, move or sell, the loan must be paid in full.
  • Cash-out refinance: A cash-out refinance replaces your current mortgage with a loan larger than your mortgage balance. You pay off your current mortgage, use the excess cash for long-term care and begin paying the new mortgage.
  • Home equity loan or home equity line of credit (HELOC): Home equity loans and HELOCs let you borrow up to a certain percentage of the equity in your home. With any financing method that uses your home as collateral, you risk losing your home if you can't repay the loan.
  • Life insurance: There are several ways you may use life insurance to pay for long-term care. If you have cash value life insurance, you can take a loan against the policy's cash value. You can also cancel (surrender) the policy and use the cash value to pay for long-term care. Some types of life insurance let you take a tax-free advance on your death benefit if you are terminally ill, have a life-threatening illness or need nursing home care. Any amount you use will come out of the death benefit. And, in a life settlement, you sell your life insurance policy to a third party, typically for less than the death benefit. The proceeds may be taxable and there may be substantial transaction costs, such as broker fees and commissions.
  • Annuity: An annuity is a contract in which you pay a fee in exchange for lump-sum or monthly payouts in the future. You can buy annuities from banks, brokers and life insurance carriers and use the ongoing income stream to pay for long-term care.

The Bottom Line

Long-term care can make life easier for both you and your loved ones. The Eldercare Locator and LongTermCare.gov have more information and resources to help find the long-term care you need. Considering financing long-term care with a home loan, HELOC or mortgage refinancing or reverse mortgage? A good credit score can help you qualify for more favorable terms and lower interest rates. Keep tabs on your credit by signing up for free credit monitoring from Experian, and you'll always know where you stand.

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