4 Ways to Fund Your Parents’ Long Term Care

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Discussing long-term care with your parents can be uncomfortable, but it’s a necessary conversation. More than 1.3 million Americans received long-term care in a nursing home in 2015. An overwhelming majority of adults over the age of 65 will require long-term care at some point in their lives.

But the cost of that care can be exorbitant. According to Genworth Financial, the national median cost of a private room in a nursing home is $8,517 per month. The median cost of in-home care services is between $4,290-$4,385 per month.

It’s important to discuss the issue of long-term care with your parents and have a plan in place to pay for the cost of care before the problem arises.

Consider these four options for funding long-term care.

1. Tax Deductions

If the cost of care exceeds 10% of your parents’ adjusted gross income, they may be able to deduct reimbursed medical expenses.

If you will be covering these costs, you may be able to apply for this deduction. In order to do this, you would have to claim your parents as your dependents. The IRS has a helpful dependency quiz that can help you determine whether this is a suitable option for you.

2. Life Insurance

If your parents have a life insurance policy, they may be able to use it to cover the cost of long-term care. Review their policies and look for accelerated death benefits or accumulated cash value.

If your parents have been paying into a whole life policy, they can either withdraw or borrow against those funds. Any withdraws up to the cost of the premiums will be tax-free.

With accelerated death benefits, policyholders can withdraw a portion of their death benefits while they are still living. While these funds do not have to be repaid, they will be deducted from the death benefit when the policyholder dies.

3. Home Equity or Sale

If your parents own a home, they may be able to take out an equity line of credit, or sell the home to cover the cost of long-term care.

In the short-term, taking out an equity line of credit will be a cost-effective option. Typically, this type of loan has favorable rates and little closing costs. However, your parents will be required to make monthly payments on the loan.

Selling the home may be an option and may help cover a significant portion of the cost of care, especially if your parents have already paid off the home.

4. Medicare – As a Last Resort and for the Short-term

Medicare generally doesn’t cover the cost of long-term care.

Medicare Part A will cover the cost of inpatient hospital stays, home health services, hospice and short-term stays at nursing facilities (with restrictions).

Stays at a skilled nursing facility will also be covered if your parents spend at least three days in the hospital.

But Medicare will typically not cover the cost of permanent residency at a nursing facility.

Medicaid does cover the cost of custodial care, but your parents will have to meet all of the federal and state eligibility requirements for Medicaid.