There are now, more than ever before, innovative financial strategies available to free up assets of older adults that have not traditionally been liquid. These assets can be utilized to pay for the services older adults both need and desire, providing the independence of choice and the ability to enhance quality of life in their later years.

Americans are growing older in record numbers and people are living longer than ever before. This has created more elder care alternatives, many of them home-based, but the payment for services has shifted from the government to the individual. The challenge for older adults and their caregivers is how do we finance the services we need, and want, to maintain our quality of life as we grow older? Almost without question, older adults prefer to stay in their homes. When that is not a viable choice, they choose community-based housing or a healthcare alternative other than nursing home care. Too often the outcome is determined by affordability, limiting choice.

The big question is: How do we pay for it? Today, not only do we have more choices in elder care services, but we have new and innovative alternatives to finance those services.

For many older adults the single largest asset they have is their home. An alternative that has existed for a number of years and is being used more frequently by older adults is a reverse mortgage.

A reverse mortgage is a special type of home loan that lets a homeowner convert equity into cash, converting a non-liquid asset for immediate use. The equity can be paid in a lump sum or monthly payments, and there are no restrictions on how the proceeds can be used. Unlike a traditional mortgage or home equity loan, repayment is not required until the homeowner no longer uses the home as their primary residence.
Under the terms of a reverse mortgage, you will be able to live in your home as long as you wish as long as you keep current on the taxes and insurance. The primary requirements are the homeowner must be at least 62 years of age and have a significant amount of equity in the home. Increased utilization of reverse mortgages for eldercare financing is, in part, due to the government guarantee programs through HUD and FHA, making the loans more accessible to more older adults.

This is an excellent strategy for making use of a substantial asset that is otherwise non-liquid. Loan proceeds might be utilized for home renovation to install special bathroom features or to pay for the services of a home health aid to come in three times a week and provide the additional support needed for a person to continue living in his or her own home. For some people, a reverse mortgage can be a financial alternative that sustains their ability to continue living in their homes.

A financial strategy every older adult should consider is “Senior Life Insurance Settlements.” This alternative is new within the last few years and, simply put, it enables individuals to sell their life insurance to a third party in exchange for a reduced amount of the face value.

The amount you receive depends on your age, health, death benefit and the number of years your policy has been in force. (In other words, you’ll probably receive more of a policy’s face value the older you are.) This can work well for any person who has a life insurance policy, enabling them to enhance their quality of life by accessing a significant portion of that asset while they are still alive.

An example is an older adult who would like to move to an assisted-living facility but finds the monthly fees more than she can manage. The financial benefits of liquidating her life insurance policy might make the difference in being able to afford a wider choice of long-term care options.

Any person age 64 and older is eligible for a senior life insurance settlement. All types of life insurance policies qualify: group policies issued through an employer or an association; term, whole life and universal policies; and coverage for federal employees and veterans.
Look for an arrangements in which there’s no fee charged to the policy holder. An additional benefit is that the proceeds from a settlement are not subject to federal taxes.

A third strategy that warrants attention is long-term care insurance. Although the cost for this type of insurance is substantial, there are a number of situations when a long-term care insurance policy is a prudent way to mitigate or transfer the financial risk of nursing home care.
Long-term care insurance can provide several distinct benefits. Policies are available that pay a daily rate for nursing home, assisted living or home care. This preserves the freedom of choice for the policyholder, while providing financial protection from the high cost of long-term care.

For an individual or couple with a significant net worth, long-term care insurance is a viable financial strategy to preserve and protect your assets. In many instances, a qualified long-term care policy may be tax deductible, helping to defray the costs of the premiums.

As with any type of insurance, you're protecting against a future risk. According to the National Association of Insurance Commissioners, one out of every three persons who turned 65 in 1990 will stay at least one year in a nursing home, and one person in 10 will stay five years or more. The risk is much higher for women than men.

Every individual needs to assess the risks to determine if it is more beneficial to self-insure or transfer the risk to an insurance policy. Although long-term care insurance is not for everyone, it can be utilized effectively to preserve choice and protect assets. At the very least should be explored to see if it is right for you. The premium costs have a direct relationship to your age at the time you take out a policy, so the sooner you investigate the better off you will be.

Tom Liguzinski, CPA, of Covedale, is a financial advisor and president of Retirement Resource Center, Inc.