November 18, 2020

The Definitive Guide on Paying for Geriatric Care

Conversations about money and finances are rarely something a care manager looks forward to. The cost of care can pose a financial challenge for many families, making conversations about affordability and payment even more difficult.

Yet financial concerns are at the core of how families approach care for their loved one. Many families are concerned about being able to afford the level of care they want, and are unsure of what financial resources might be available. As a matter of fact, only 13 percent of families can afford in-home senior care, let alone assisted living or nursing home facilities. 

The good news is that there are a variety of ways families can pay for the care their loved one needs and deserves. Some of them may not be as well-known as others, but can offer even more financial assistance than more popular options. Here’s everything you need to know about how families can pay for geriatric care.

Selling a Life Insurance Policy

Many families may not realize that the best tool for affording senior care may already be in their loved one’s financial portfolio. Life insurance policies can provide a substantial amount of money that can go toward making care more affordable. Many seniors, however, end up surrendering their policies if their financial circumstances change (and they can’t afford premiums), or they determine they no longer need their insurance policy for other reasons and return it back to the insurance company.

Every year, more than $100 billion worth of life insurance plan value ends up being surrendered to insurance companies by those 65 or older. This is a significant amount of money that could go toward their care. Worst yet, surrendering a plan means giving up years of equity for no financial gain.

Any senior with a life insurance plan should consider selling or refinancing their plan in order to access their money when they need it the most. Many plans (not just those with an accumulated cash value) can actually be refinanced or sold to an investor that then pays out the policyholder. 

Selling vs. Cashing In a Life Insurance Policy

There are three ways to use a life insurance policy to help pay for care. When a person sells their plan, they receive a lump-sum payment from the buyer. This amount is typically five times more than what they would receive when cashing in their policy, but is less than what the policy would pay out after death. The buyer assumes responsibility for premium payments for the remainder of the policyholder’s life, meaning that the policyholder no longer makes payments on their plan. This also means that the buyer becomes the primary beneficiary of the policy and receives its payout when the seller passes away. 

Cashing in a life insurance policy may sound similar, but is an entirely different endeavor. Instead of paying out the policy’s beneficiaries, the insurance company instead provides the policyholder with the cash value in the policy. This also means that the insurance company does not have to pay out the benefit of the policy when the holder dies—and the holder only gets what they’ve accumulated as savings (if any) in the policy, less closing or transaction fees.

Sellable Life Insurance Policy Types 

In most cases, one should be able to sell any life insurance policy. However, families might not be clear on what type of policy they have and if there are other considerations. There are a mix of other types of policies that are variations of the above. Most importantly, all of them can be sold. A buyer will make an offer to a policyholder based on how much the premium is, how long they'll have to pay those premiums (in other words, the amount of time the seller is expected to live), and how much they'll receive at the time of the seller’s death.

  • Term life insurance: This is a life insurance policy for a specific amount of time; for example, a policyholder may have a 20-year term policy. In order to sell a term policy, it will need to be converted to a permanent policy, which covers one’s life until death.
  • Whole life insurance: Unlike a term policy, the owner pays premiums on a whole life insurance policy until they pass away, or until one surrenders it or it lapses after a grace period.
  • Universal life insurance: This type of insurance is a types of whole life insurance where the cash value savings one puts into the policy can be used to offset premiums (though when interest rates are low, premium payments may rise because the cash value of the policy is reduced)
  • Variable life insurance: Another type of whole life insurance policy, but instead of the cash value accumulated into a savings vehicle, it is invested in the stock market. If the market performs well, the cash value goes up, but the plan loses value in a down market

The good news is that one can sell most kinds of life insurance policies. Families may not know that this resource is available, meaning it’s crucial for care managers to understand just how flexible it is to sell a plan.

Why Selling a Plan Can Make More Financial Sense

In many cases, families benefit more from having access to cash by selling or refinancing a life insurance policy than receiving the policy payout later on. Obtaining money up-front from a policy can mean the difference between racking up debt to pay for care and easily affording a better quality of life for everyone concerned. 

Selling a life insurance policy used to be an arduous (and sometimes predatory!) process. Buyers did not provide transparency with how they came to their valuations, and families rarely had an advocate to make sure they got the biggest payout possible. Today, the Department of Insurance and multiple financial regulatory committees have helped create more oversight of the industry, which is good for families.

The Best (and Worst) Ways to Sell an Insurance Plan

There are several strategies for selling a life insurance plan. Not all of them are created equal in terms of offering the best bang for one’s buck. Getting help from the policy provider, a financial advisor, or a broker all offer different advantages and disadvantages. Going it alone can maximize value, but may also leave families vulnerable to a less favorable deal overall.

The Best Options

  • Work with a Referral Agent
    Referral agents provide sellers with a robust set of tools, resources, and help for families looking to sell a life insurance policy. These companies work with prospective sellers to understand why they want to sell the policy, appraise the policy’s value before sale, offer referrals to brokers or providers that they have already vetted, and ensure that the seller’s best interests are always represented. Better yet, referral agents get paid by brokers or the policy buyer—meaning that one can work with them with zero cost whatsoever.
    Worthright is the preeminent referral agency for life insurance plans. Our mission is to make it easier for families to get the best possible deal for their life insurance plans—but that’s not all we do. We are also advocates for families during periods of intense stress. Caring for elderly loved ones is a challenge: these responsibilities often sit alongside raising a family, managing a full-time job, and trying to live a life of one’s own.
    Our estimate wizard makes it easy to find out how much a policy is worth. With just a few financial  questions, we are able to provide a comprehensive affordability overview and data that makes it easier to find out how to pay for elder care. We also offer a tool for care managers to use with their families (more on that in the next chapter).
    Our approach goes beyond looking at the financial figures of a policy’s worth, including a broader assessment of a family’s financial resources and how they pertain to care. We help our clients throughout the process of getting the care their loved ones need, understanding just how multifaceted and complex the process might be.
  • Talking to a Financial Advisor
    A financial advisor may be a good place to start if a family has one (and if they don't, it's worth it for them to pay for an independent financial advisor. We can help families find an independent financial advisor that focuses on post-retirement in their area). If a family has a relationship with a bank, they might want to reach out to their banker or investment advisor to see if they know where to sell a life insurance policy.
    But even if a family does have a financial advisor, there is a good chance that they may not be familiar with how to sell a life insurance policy in the first place. Even if they are, they won’t likely handle the transaction themselves. This means that an advisor can only provide so much help and information about the process, reducing the amount of help—and protection of their clients’ best interests—significantly.

The Worst Options

  • Selling with the Insurance Provider
    Insurance providers can help work out alternative options to selling a plan, if that is ultimately in the policyholder’s best interest. Insurance providers won't buy the policy, but they can offer alternatives to selling a policy, such as surrendering the policy, taking the cash value out of the policy, or using the cash value to pay premiums if that's an option.
    Insurance providers aren't a great place to go to get information about selling a policy, however. They would prefer people surrender their policy rather than selling it, as this means the insurance company gets to keep the premiums that have been paid for years. This also means that they don't have to pay out the policy’s benefit upon death of the policyholder. 
  • Find a Life Settlement Broker
    As with most brokers, a life settlement broker doesn’t buy a life insurance policy. They do, however, have access to a network of potential buyer representatives (called "providers"). A broker might be able to get multiple offers or find offers that a prospective seller wouldn’t be able to find on their own.
    Brokers also charge a commission—and they should. They are (in most states) legally required to represent their clients’ best interests and they put a lot of work into getting the best offer. But the commissions can be high—up to 30% of the sale price of a life insurance policy. And even though (in most states) they are required to disclose the commission, they often make it hard for people to find or understand.
    Sellers should read reviews for any brokers they’re considering using. This will help them determine how reputable they are and whether they have connections that can help provide a better deal.
  • Working Directly with a Life Settlement Provider
    Selling directly to a provider is like selling a house directly to a buyer. This allows a prospective seller to "cut out the middle-man” and save on broker commission costs. The difference here is that understanding the value of an insurance policy is much more complex than knowing the value of one’s own home or other sellable holdings. Providers represent buyers, who are obligated to try to get the best price for the life insurance policies they buy.
    The advantage of going to a provider is that a seller may be able to get a faster payout (often to the tune of a matter of days rather than weeks), and there’s no commission fee. But some of the bigger or more disreputable providers will offer a fraction of what the policy is actually worth.
    As with brokers, read reviews before interacting with a life settlement provider. Sellers are likely going to take a big hit on their death benefit payout, so it’s essential to work with the best providers possible. Alternatively, sellers should consider working with a company like Worthright as we can help find the right options without charging a commission.

Long-Term Care Insurance

There are a few other insurance plans that can help pay for long-term care, but they are somewhat uncommon. Long-term care insurance is perhaps the best known of this category, as it is designed specifically to help make elder care more affordable. According to the AARP, around 7.2 million Americans have a long-term care insurance policy, making it considerably less common than life insurance policies. 

These policies cover many costs associated with nursing homes, assisted living, and in-home care. This can make them an interesting option for families looking for ways to pay for care, especially as medicare does not cover these kinds of expenses. Plus, by shopping around and purchasing a plan in one’s late 50s or early 60s, one can take advantage of lower premiums than they’d likely get later in life.

There are plenty of drawbacks to long-term care insurance, however. The first is the premium price tag. Premiums tend to cost $2,700 on average, making them quite expensive for many families. Plus, the unpopularity of these plans means that there are fewer participants, making them prohibitively expensive for providers to offer—and to pay out to policyholders.

VA Benefits

The Veterans Administration (VA) operates the Aid and Attendance program as part of its pension benefits. Aid and Attendance offers money for veterans and their surviving spouses with money to help pay for assistance, which can help make care more affordable. Veterans who exceed the legal limit for their VA pension may still qualify for the program, so long as they don’t receive reimbursement for these expenses from other sources.

Aid and Attendance is available for veterans who have served for at least 90 days, and with at least one of those days being during wartime. The program is not limited to veterans with disabilities due to their service, and spouses can qualify so long as they require aid from another person. Types of aid include dressing, feeding, using the bathroom, or bathing. This benefits program also includes those who are bedridden, blind, or reside in a nursing home facility. 

Real Estate Sale

Many seniors opt to sell their home for a variety of reasons, be it to downsize on what they need to maintain, to put away money for retirement, or to pay for long-term care when it becomes necessary. Most people’s homes are their main source of equity, meaning that selling a house or property can provide a sizable payout (especially if the mortgage is paid off). 

Reverse Mortgage

Selling one’s home only works if the senior has a new place to go, be it a family members’ home or some type of assisted living or nursing facility. Because the vast majority of adults want to age in place, their home becomes their sanctuary. Although this may make selling real estate a non-starter, it doesn’t mean that one can’t use their home to help make long-term care more affordable. 

This is where reverse mortgages come in handy. With a reverse mortgage, seniors who are 62 or older can access monthly payments from lenders. Unlike with a traditional mortgage, the lender pays the homeowner based on the perceived value of their real estate. Unlike a second mortgage or home equity loan, reverse mortgages do not need to be repaid so long as one still lives in the home, or until one fails to keep up with their original mortgage. In most cases, reverse mortgages are a better option for seniors who have already paid off their mortgage, as they can use these funds to withdraw equity on the home they own in full.

Rushing to sell a property often means agreeing to a price that might fall below one’s hopes. When one is not in a position to wait for more competitive offers, there’s a chance that they won’t get the home’s full asking price. This means leaving money on the table due almost exclusively to the speed with which their sale has to go through. If this is the case for a family, a reverse mortgage may be a more appealing option. 

Bridge Loan

Transitioning from family care to professional assistance can be an expensive process, particularly if a loved one is moving into an assisted living facility or nursing home. Costs can add up quickly, and the money needed to pay up-front costs can be prohibitively expensive on their own. That’s where bridge loans can help. 

Bridge loans can offer anywhere from $5,000 to $500,000 depending on the borrower’s credit score, credit history, and annual income. These loans can be helpful when the sale of a home is pending, a family member needs to move into assisted living quickly, when rental and care payments are due before benefits kick in, or when assisted living and nursing home facilities require steep move-in fees.

There are several drawbacks to bridge loans, however. The terms of these loans can be steep—often with double-digit interest rates. Plus, loans in general may not make the most financial sense if a family can source money from other places, like the sale of a life insurance policy. Opting for a loan as a line of first resort may end up costing more in the long-run than other options.

The Bottom Line on Paying for Geriatric Care

Conversations about money and finances are rarely something a care manager looks forward to. The cost of care can pose a financial challenge for many families, making conversations about affordability and payment even more difficult. 

At the end of the day, however, you need to be compensated fairly for the services you’re providing and part of that service is helping your clients access a broader range of options and a higher quality of care. Any care manager will tell you that there are often more hours spent on their clients than a bill reflects. Making sure you’re taking care of your own personal finances and being paid for what you provide is paramount.

You might also like

Related Resources

Related Resources

← Back to Resources