1. Government programs:
Veterans and people with low income who can't afford to cover long-term care expenses might be eligible for long-term care assistance from the federal government, through Medicaid and the Veterans Health Administration, or state-run assistance programs.
You can't rely on Medicare to cover these costs, even if you're age 65 or older. Medicare provides limited benefits for long-term care, and would not cover an extended stay in a nursing home.
As for Medicaid, benefits kick in only after you've depleted your savings, and the choices for where and how you receive care could be limited. Benefits and eligibility vary from state to state, and savings and income are frequently key factors.
2. Traditional long-term care insurance policies:
You can choose the amount of coverage, how long it lasts, and how long you have to wait before receiving benefits. Typically, you pay an annual premium for life, although your premium payment period could be shorter.
However, many insurance companies no longer offer traditional policies and those that do may raise annual premiums after purchase.
3. Hybrid policies:
One type of hybrid insurance offers life insurance and long-term care. A life insurance and long-term care hybrid policy will pay for long-term care during your lifetime if you need it. But if you don't use your long-term care benefits, it will pay a life insurance death benefit to your beneficiary upon your death.
If you had a long-term care need, you would be able to draw down or accelerate the death benefit amount to pay for your care, subject to a monthly maximum amount. However, even if you used up the entire death benefit, the insurance company would still provide additional long-term care coverage.
Another type of hybrid is a long-term care annuity, which provides long-term care insurance at a multiple of the initial investment amount. The investment grows tax-free at a fixed rate of return, and, if used for long-term care expenses, gains will be received income tax-free. If you qualify for long-term care benefits, the long-term care coverage would draw down both the account value and the long-term care pool. Once your account value has been exhausted, the insurer would provide the remaining long-term care pool benefits, which is effectively the insurance component of the policy.
However, today's low-interest-rate environment has made it challenging for insurers to provide annuities with long-term care coverage. So, it's important to note that these products have yet to gain any significant traction in the market, and, as a result, may not be available through your insurance company.
4. Personal savings:
Using your personal savings to pay for long-term care costs can provide you with greater flexibility. However, before using your savings, ask yourself if your retirement plan is built to withstand these potential expenses. Also consider whether you have enough time to continue to save for this option given you won’t know when you might need to begin long-term care services—or for how long you may need them. And even if you believe your plan is sound, keep in mind that long-term care coverage can also help protect your other assets and allow you to pass your wealth on to your loved ones.
If you do use your qualified retirement accounts, such as your 401(k) or IRA, there may be tax ramifications for withdrawals.