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Dwindling Savings Puts Spotlight on Supplemental Income Options

Written by Alyssa Gerace of Senior Housing News for ALFA Update

In the aftermath of the Great Recession, the need for—and awareness of—supplemental options for paying for senior living has grown substantially, spurring the growth of relationships between senior living providers and senior funding sources.

The economic downturn, burgeoning senior population, and ongoing budget crisis have combined to create an environment in which a growing number of seniors struggle to leverage their home equity with a lessening ability to rely on government programs to fund their retirement living.

In the near term, seniors whose investments took a hit while home values fell sharply are feeling the impact the most, and it shows in the heightened awareness of prospective senior living residents, says Jayne Sallerson, executive vice president of sales and marketing at Emeritus Senior Living.

“Before the economic downturn, unless someone brought up a financial barrier, our salespeople weren’t as adept at educating consumers,” she says. “Now, people are so much more aware; they’re more cognizant [of supplemental funding options] and they’re asking about them.”

The number one resource people turn to, in Sallerson’s experience, is the VA benefits program for Aid & Assistance. Qualified veterans and their spouses can apply to the program to get monthly benefits to help cover the cost of assisted living care.

While families can go on their own to a VA office to learn more about and apply for the Aid & Assistance Program, the application process can be complicated and in some cases take up to nine months for the funding to come through.

The Great Recession essentially left many seniors trapped in their homes and sparked the need for interim financing as potential senior living residents wait for their houses to sell, or for VA benefits to kick in, says Elias Papasavvas, founder and CEO of Elderlife Financial Services, whose company provides lines of credit used to fund senior care.

The typical consumers calling Elderlife Financial for help hadn’t planned for a move into a needs-based senior living community, whether for themselves or a loved one, and weren’t financially prepared.

“There was a significant spike in requests by families [following the recession],” says Papasavvas.

Good economy or bad economy, there will be a need for this transitional financing, he continues. What will likely change is the amount of time it takes to repay the loan.

“In a good economy it may be a few less months the credit is outstanding, compared to in a bad economy where it takes longer to sell the house,” he says.

These days, the housing market is showing signs of a recovery as values slowly regain ground. But the economy is only one of three drivers that ensure the ongoing need for supplemental financing options. The other two—demographics and the debt crisis—aren’t going away.

“[Even] if the economy were to recover to pre-2008 levels, it would have no diminishing impact on our business,” says Chris Orestis, co-founder and CEO of Life Care Funding Group, which converts life insurance policies to long-term care benefits.

Seniors with life insurance policies are ineligible for Medicaid. Rather than abandoning those policies, converting them into benefits can increase the timeline for privately paying for senior care by an average of 15 to 18 months, depending on policy size and care needs.

Although LifeCare Funding was founded just five years ago, its volume of business has grown by at least 100 percent each year, Orestis estimates. Today, the company has more than 4,000 senior living communities in its program—a number that continues to multiply.

That’s not likely to change, Sallerson says. While VA benefits and interim line-of-credit financing are probably the most popular options for senior care funding, life insurance policy conversions will likely increase.

“I think this awareness will stick,” says Sallerson. “People are going to continue to educate. The baby boomers are coming, and a lot of them don’t have as much savings as the existing customers right now.”

At this point, many supplemental financial services are still “barely scratching the surface” of market potential, says Orestis.

“There’s no end in sight in terms of the number of seniors and those in the long-term care industry who can use our program,” says Orestis. “Long-term care services and providers have to look for how to educate and open up opportunities for consumers to access as many private pay options as possible.”

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