A young nurse kneels beside an older man and smiles at him. They are in a common room in a senior care facility.
Assisted living can be costly. Understanding the options for paying for it can help make sure you or your loved one gets the right care.

There are many ways to pay for assisted living. A person who lives in an assisted living community can utilize their savings, Social Security benefits, pensions, or other retirement income. If personal funds won’t cover all the costs or are not options, other external sources can help cover the cost of assisted living.

Using insurance

Does Medicare cover assisted living? 

Medicare is a national insurance program that provides health insurance for specific populations of people; one group is adults age 65 and over. This health insurance program covers certain medical costs. Medicare does not cover the costs of assisted living that are not medical. 

For example, Medicare does not cover the rent to live in an assisted living facility. Medicare does cover approved doctor appointments and other medical services a person receives while living in the assisted living facility.

To learn if Medicare covers the services a person needs, you can review the parts of the Medicare plan or read Medicare’s information on what Medicare covers and what’s not covered by Part A & Part B.

Does Medicaid cover assisted living? 

Medicaid is a national health insurance program for individuals who meet low-income and asset requirements. It is run jointly by the federal government and individual states. The federal government sets some standards, then allows states to decide the services they provide.

Each state has different Medicaid programs for the types of care they cover. Medicaid can pay for some senior care costs associated with assisted living. A person who has Medicaid and wants to live in an assisted living facility must find one that accepts Medicaid as payment for residency. It’s important to note that not all state Medicaid programs pay for assisted living.

Contact the appropriate state Medicaid office to determine which services and care are covered.

Does long-term care insurance cover assisted living costs?

Long-term care insurance is a type of insurance policy designed to help pay for personal care (also known as custodial care) in a variety of residential settings.

Long-term care insurance policies may vary in what they do and do not cover. Some long-term care insurance policies help pay for the cost of assisted living. It’s important to note that policies with assisted living coverage may have a cap on how much they reimburse. 

It’s important to consult with the insurance provider to learn if the policy covers assisted living and how much it will cover or reimburse.

Does life insurance cover assisted living?

Some life insurance policies can help pay for assisted living. The main types of policies that can help cover assisted living costs include combination products, long-term care riders, accelerated death benefits, life settlements, and viatical settlements. Each type of insurance product works differently, depending on the policy and the policyholder’s situation.

  • Combination products: Some insurance providers offer plans that combine life insurance with long-term care insurance.
  • Long-term care riders: An insurance rider is supplemental coverage added to an existing policy that helps cover unexpected situations. This type of supplemental coverage has rules that apply to when and how the policyholder can use them. For example, the policyholder may need to show that they can not perform two activities of daily living independently, such as bathing, dressing, moving to and from bed, or eating. If the person qualifies and can access money from their policy, the dollar amount is deducted from the amount paid out to policy beneficiaries after the policyholder dies.
  • Accelerated death benefits (ADB): Some life insurance policies have accelerated death benefits, which may be used to help pay for long-term care. This feature of a policy allows the policyholder to take an advance on the death benefit of the policy. The dollar amount that the policyholder uses while they are still living is deducted from the benefit paid out to beneficiaries after death. A person may be able to use the ADB feature depending on the rules of their policy. Needing long-term care in assisted living may be one of these qualifying reasons. The amount the policyholder can use for long-term care is typically capped at a percentage of the policy’s face value.
  • Life settlements: Life settlement plans allow the policyholder to sell the policy for its value at the time, and the policyholder can use the funds as they need to. There are age restrictions for using a life settlement (typically ages 74 years or older for women, 70 years or older for men), and the money may also be taxed. It’s important to note that when a policyholder sells the policy to the settlement company, the company assumed responsibility for paying monthly premiums. It also receives the death benefit upon the policyholder’s death — not the previously named beneficiary.
  • Viatical settlements: Viatical settlement plans are similar to life settlement plans because they allow the policyholder to sell the policy for its value. These plans are different from life settlement plans because different rules apply to them. For example, these plans require that the policyholder has a terminal illness and less than a two-year life expectancy, typically. If the policyholder is approved, the settlement is based on a percentage of the death benefit and the life expectancy.  

Each policy has different requirements and rules. It’s important to talk with the policy’s provider to determine what the policy will help cover. 

Sale of your home or assets

Individuals who are moving from their homes into assisted living facilities may be leaving one of their largest assets: their homes. While some will want to keep their home in the family, others may want to sell their home. Older adults who sell their homes when moving into assisted living facilities may use the sale’s proceeds to fund their assisted living expenses.

Veterans benefits

Older adult U.S. military veterans who meet certain criteria can utilize various benefits to help with assisted living costs. Below are a few benefits that can help with senior living expenses:

  • Aid and Attendance benefit: Eligible individuals who apply and are approved receive the Aid and Attendance benefit, which are monthly payments that can help pay for care. This benefit can help cover a variety of long-term senior care including in-home care, memory care, adult day care, nursing home care, and assisted living.
  • Homebound Allowance: Eligible individuals who apply with proof that they have a medical need for assistance or supervision due to a disability and are approved can receive money to help pay for the cost of assisted living.

Bridge loans

A bridge loan is a short-term loan that individuals can use to help pay for immediate expenses while they wait for other funding to become available. Typically, these loans are used in commercial industries, like real estate.

ElderLife Financial Services offers its ElderLife Bridge Loan, which is specifically designed for people who need to secure immediate funding for senior care. For example, a person who needs to move to a facility to an assisted living facility may obtain an ElderLife Bridge Loan to pay for residency at the facility while they wait for their home to sell. When the home sells, the person pays off the loan and can use the proceeds from the home sale for their care. This loan helps people access funds immediately so their current financial situation doesn’t prevent them from getting the help they need.

Other financial products

There are other financial options for paying for assisted living. Many factors help determine which type of loan is most appropriate: whether the person plans to stay in their home, the type of care the person needs, the person’s financial situation, and the cost of care. 

Homeowners can obtain home equity loans, home equity lines of credit (HELOC), and other personal loans to help pay for assisted living.

Is assisted living tax deductible?

The IRS allows some deductions for unreimbursed assisted living expenses. There are rules, limits, and criteria that must be met.

If applicable, some costs that may be tax-deductible include

  • A portion of long-term care insurance premium.
  • Unreimbursed medically necessary long-term care.
  • Cost of room and board at an assisted living facility, if the main reason a person lives there is to receive medically necessary care.

IRS Publication 502 Medical and Dental Expenses indicates the full list of qualifying expenses. A person can claim these and other qualifying expenses only if they itemize their deductions.  

Some of the criteria for determining that long-term care is tax-deductible include

  • A licensed health care provider determines the person receiving care to be chronically ill.
  • Total expenses exceed 7.5% of the person’s adjusted gross income.

It is helpful to know that an adult child may be able to deduct expenses they pay for if they claim the parent as a dependent. Consult with an accountant to determine which expenses are tax-deductible.