How Seniors Pay for Long-Term Care

Here’s a number that doesn’t get talked about enough: if you’re over 65, there’s roughly a 70% chance you’ll need some form of long-term care in your lifetime. That comes from the Department of Health and Human Services, and it’s been remarkably consistent over the years.

Most families don’t plan for it. And the ones who do often discover that the costs are far worse than they expected.

The Long-Term Care Cost Crisis

Long-term care is expensive, and the costs keep climbing — up nearly 69% since 2004 according to industry data. These are the kinds of numbers families are looking at in 2026:

That means a three-year nursing home stay — which is close to the national average — can easily cost $350,000 or more.

The Gap Medicare Doesn’t Fill

The part that blindsides families: Medicare does not cover long-term care. It’ll pay for short-term skilled nursing after a hospital stay (up to 100 days, with copays kicking in at day 21), but that’s it. Medicare was never designed to cover the ongoing custodial care that most people actually need — help with bathing, dressing, eating, getting through the day.

So where does the money come from? There are six main options, and each one involves real trade-offs.

1. Out-of-Pocket Savings

The most direct route: pay out of retirement savings, investments, or whatever other assets you’ve accumulated.

Pros:

• No applications, no waiting periods, no restrictions on the type of care
• You stay in complete control of your care decisions

Cons:

• Long-term care costs can drain a lifetime of savings in just a few years
• Leaves less (or nothing) for a surviving spouse or heirs
• Creates enormous financial stress during an already difficult time

If you’ve got a substantial nest egg, self-funding might be doable. But for the average family, watching a lifetime of savings disappear in two or three years is devastating — both financially and emotionally.

2. Long-Term Care Insurance

Long-term care insurance (LTCI) is the product that was supposed to solve this problem. You pay premiums for years, and when you eventually need care, the policy picks up the tab.

Pros:

• Can cover home care, assisted living, and nursing homes
• Protects your other assets

Cons:

• Premiums have risen dramatically — many policyholders have seen 40–100% increases
• If you didn’t buy a policy in your 50s or early 60s, it’s often too expensive or unavailable
• Some policies have benefit caps that don’t keep pace with actual costs
• “Use it or lose it” — if you never need care, you never see that money again

If you already own an LTCI policy, hold onto it — it may be the most valuable coverage you have. But if you’re shopping for one now in your 70s, the premiums are likely eye-watering, and many insurers won’t write you a policy at all.

3. Medicaid (Spend-Down)

Medicaid is a joint federal-state program that covers long-term care for people with very limited income and assets. To qualify, most states require you to “spend down” your assets to roughly $2,000.

Pros:

• Covers nursing home care at no cost once you qualify
• Available in every state

Cons:

• You must deplete nearly all of your savings and assets first
• Limited choice of facilities — not all nursing homes accept Medicaid
• Your home may be subject to estate recovery after death
• The spend-down process can be financially and emotionally devastating
• Medicaid planning requires careful legal guidance (and should start years in advance)

Medicaid exists as a safety net, but the price of entry is brutal — it means giving up nearly everything you’ve spent a lifetime saving.

4. Veterans Benefits

A lot of veteran families don’t know this benefit exists. The VA Aid and Attendance benefit is a pension supplement for veterans (or surviving spouses) who need help with daily activities, and it can put real money toward long-term care.

Pros:

• Can provide over $2,000 per month for a veteran (less for a surviving spouse)
• Can be used for home care, assisted living, or nursing home care
• Does not require a service-connected disability

Cons:

• Application process can be slow and complicated
• Income and asset limits apply (though they’re more generous than Medicaid)
• The benefit alone rarely covers the full cost of care
• Not all families are aware this benefit exists

If you or your spouse served, look into this — seriously. It probably won’t cover the full cost of care on its own, but it can take a meaningful bite out of the bill.

5. Reverse Mortgage

If you own your home, a reverse mortgage (technically a Home Equity Conversion Mortgage, or HECM) lets you tap into that equity and convert it to cash — cash you can then put toward care costs.

Pros:

• No monthly mortgage payments required
• Can provide a lump sum, monthly payments, or a line of credit
• You stay in your home (as long as you continue to live there)

Cons:

• Only works if you own a home with significant equity
• If you move to a care facility, the loan becomes due — which usually means selling the home
• Fees and interest reduce the equity remaining for heirs
• Your home may not be passed on to your family

A reverse mortgage makes the most sense if you plan to stay in your home and need funds for in-home care. If a nursing home move is on the horizon, the math gets complicated fast — because the loan comes due when you leave the house.

6. Life Settlement

This is the option we know best, and it’s the one most families have never heard of. A life settlement means selling a life insurance policy you already own to a licensed third-party buyer for a lump-sum cash payment. The buyer picks up the premium payments going forward and collects the death benefit down the road.

Pros:

• Provides a lump sum of cash — often significantly more than surrendering the policy
• No debt, no repayment, no ongoing obligations
• Frees you from premium payments you may no longer be able to afford
• The money can be used for any type of care, with no restrictions

Cons:

• You give up the policy’s death benefit (heirs will not receive it)
• Not every policy qualifies — check the eligibility requirements to see if yours might be a fit
• The process takes several weeks to a few months
• Proceeds may be partially taxable (see our life settlement tax guide for details)

Why Life Settlements Are Often Overlooked

Life settlements are regulated in most states, yet they remain one of the least-known ways to fund long-term care. We hear the same story constantly: someone lets their policy lapse or surrenders it to the insurance company for a fraction of what it’s actually worth, simply because nobody mentioned that selling was even possible.

To put numbers on it: a policy with a $500,000 death benefit might have a cash surrender value of $30,000. On the life settlement market, LISA data shows sellers receive 4–7× their cash surrender value on average — and that multiple hit a record 6.5× in 2024. An estimated 500,000 qualifying policies lapse or are surrendered every year that could have been sold instead. See how much your policy is worth or browse real settlement examples to get a feel for the range.

That kind of money can fund years of care — and it’s coming from an asset that many seniors were planning to give up anyway. For a step-by-step walkthrough, see our guide on how to sell a life insurance policy for cash. If you’re over 70, your age actually works in your favor — older policyholders tend to receive higher settlement offers.

Which Option Is Right for You?

Honestly, there’s no one-size-fits-all answer. Most families end up combining two or three of these strategies. Here’s the six options at a glance to help you compare:

The critical thing is to understand your options before a care need becomes urgent — because once you’re in crisis mode, your choices narrow fast.

How to Plan Ahead for Long-Term Care Costs

The more you know before a care need hits, the more control you have over how you handle it. And if there’s a life insurance policy sitting in a drawer that’s no longer serving its original purpose, it might be one of the most powerful tools in your plan — you just didn’t know it yet.

If you or someone in your family owns a life insurance policy that could help pay for care, get a free estimate and find out what it’s worth. Or give us a call at (321) 270-0279.

Sources

• U.S. Department of Health and Human Services — Long-Term Care Statistics — Primary source for the finding that roughly 70% of Americans age 65 and older will need some form of long-term care in their lifetime.
• CareScout Cost of Care Survey (2024) — The successor to Genworth’s annual Cost of Care Survey. National and state-level cost data for home health aides, assisted living, and nursing home care. Current 2024 national average: roughly $114,975 annually for a semi-private nursing home room ($315/day).
• Medicare.gov — Long-Term Care Coverage — The authoritative source on what Medicare does and does not cover for long-term care (skilled nursing, not custodial care).
• Centers for Medicare & Medicaid Services — Medicaid Long-Term Services and Supports — Federal Medicaid rules and state-by-state program variation for long-term care, including asset lookback rules.
• National Council on Aging — Economic Security — The source for the finding that 80% of older adults are financially struggling or at risk of economic insecurity in retirement, which is the context for most LTC funding decisions.
• Life Insurance Settlement Association — Annual Market Data Survey — Industry data on life settlements as a tax-advantaged funding source for long-term care, including the 6.5× cash surrender value multiple on closed transactions in 2024.
• VA Aid and Attendance Benefits — Federal program for qualifying wartime veterans and surviving spouses that pays an additional pension amount toward long-term care costs.