When a family first looks at the cost of a residential care home, the math is alarming. Six to nine thousand dollars a month, multiplied by the number of months you expect the placement to last, produces a number that few families can pay from savings alone. The instinct is despair: “We cannot afford this.”
The instinct is usually wrong. Most families paying for residential care are not paying entirely from savings. They are stacking three or four different funding sources, each one chipping away at the monthly cost, until the out-of-pocket portion becomes manageable. The families who learn to stack are the families who can actually afford to keep their parent in a good home for years. The families who do not learn end up choosing a worse home or moving their parent again after the savings run out.
This guide walks through the seven funding sources beyond personal savings that families most often overlook, with honest assessments of what each one is good for and where it falls short. Read it before you make a placement decision. The right funding combination can make the difference between three years of care and ten.
Source 1: Social Security and SSI
This one is not overlooked exactly, but the way it interacts with care home cost surprises many families. If your parent is receiving Social Security retirement benefits, those payments continue when they move into a care home and can be used to pay the room and board portion of the bill. The average monthly Social Security retirement benefit in 2026 is approximately $1,950, which is enough to cover a meaningful share of the room and board for most homes.
For lower-income older adults who do not have a substantial Social Security work history, Supplemental Security Income (SSI) is a federal cash benefit administered by the Social Security Administration. The maximum federal SSI benefit for 2026 is approximately $987 per month for an individual, with state supplements in many states. SSI is means-tested (asset limit of $2,000 for an individual) and can be paid directly to the care home through a representative payee arrangement. For the residents of small homes who qualify for both Medicaid HCBS and SSI, the SSI benefit typically covers most or all of the room and board portion of the cost.
Setting up a representative payee for a parent with cognitive impairment simplifies the monthly payment process. The form is on ssa.gov/payee/.
Source 2: Long-term care insurance
If your parent purchased a long-term care insurance policy years ago and you are not sure whether it covers residential care, the answer is: probably yes, with conditions. Most policies issued in the last twenty years cover both nursing home care and “home and community based care,” which usually includes board and care, RCFE, adult family home, and assisted living. The policy will have an elimination period (typically 30 to 90 days during which you pay out of pocket before the benefit begins), a daily or monthly benefit cap, and a benefit period (typically two to five years).
The first step is to find the policy and read it. The second step is to call the insurer’s claims line and ask: does this policy cover care in a licensed residential care setting, what is the daily benefit, what is the elimination period, what is the benefit period, and what documentation do you need to start a claim? The claims process typically requires a physician’s certification that the insured needs help with at least two activities of daily living or has a cognitive impairment. The home you are considering will usually help you assemble the documentation.
Common mistakes families make with long-term care insurance:
- Letting the policy lapse during the wait. If the insured stops paying premiums during the elimination period, the policy can be canceled. Most policies have a “waiver of premium” provision that suspends premium payments once the benefit begins, but you have to file the claim to trigger it.
- Not knowing the daily benefit cap. Older policies often have caps of $150 to $200 per day, which translates to $4,500 to $6,000 per month. This may not cover the full cost of a board and care home, but it covers most of it. Newer policies often have higher caps and inflation riders.
- Assuming the policy is dead because it has not been used. Many families are surprised to discover an old policy in a parent’s filing cabinet that they had forgotten about. Always check.
The National Association of Insurance Commissioners maintains consumer guidance on LTCi policies and how to evaluate them.
Source 3: VA Aid and Attendance
If your parent is a wartime veteran or the surviving spouse of one, VA Aid and Attendance is one of the most valuable benefits available, and one of the most underused. The maximum monthly benefit in 2026 is approximately $2,358 for a single veteran, $2,795 for a married veteran, and $1,515 for a surviving spouse. The benefit is tax-free, paid for life, and can be used toward the cost of residential care.
The eligibility rules sound exclusionary but are broader than most families assume. The veteran needs 90 days of active duty with at least one day during a recognized wartime period, an honorable or general discharge, financial need (which after deducting care costs almost always qualifies), and a clinical need for help with daily activities. The veteran does not need to have served in combat or to have a service-connected disability.
The single biggest reason families do not apply is the misconception that gross Social Security income disqualifies them. After deducting unreimbursed medical expenses, including the cost of the care home, the income for VA purposes is almost always within the limit. Run the math, do not assume.
Our full Aid and Attendance guide walks through the eligibility tests, the application process, the three-year lookback rule, and how to find an accredited representative who can help for free.
Source 4: Medicaid HCBS waivers
Medicaid is the single largest payer for long-term care in the United States, but the way it pays for residential care is one of the least understood parts of the system. In states with Home and Community Based Services (HCBS) waivers that include residential care, Medicaid can cover the care services portion of the monthly cost for eligible residents. The room and board portion is generally not covered and must come from another source (usually Social Security or SSI).
The states with the strongest Medicaid pathways for residential care include Washington (COPES and Community First Choice for adult family homes), Oregon (the K Plan and Spousal Pay programs for adult foster homes), Minnesota (the Elderly Waiver for customized living settings), New Jersey (Managed Long-Term Services and Supports for assisted living), and California (the Assisted Living Waiver for RCFE care in select counties). The federal directory is on medicaid.gov.
Eligibility requires meeting both a financial test (typically $2,000 in countable assets and an income limit around 300 percent of the federal SSI rate) and a clinical test (typically nursing-facility level of care). The five-year lookback period on asset transfers is the most important reason to talk to an elder law attorney before doing any planning. Our Medicaid guide walks through eligibility, the application process, and the most common mistakes.
Source 5: Life insurance conversion
Many older adults have life insurance policies they purchased decades ago when they had young children or a mortgage, and which are no longer needed for their original purpose. Rather than letting the policy lapse or surrendering it for the cash value, families have several options to convert the policy into funds that can pay for care.
Life settlement. A life settlement is the sale of the policy to a third-party investor for an amount greater than the cash surrender value but less than the death benefit. The investor takes over premium payments and collects the death benefit. Life settlements are most valuable for older adults with permanent (whole life or universal life) policies and significant face values, typically $100,000 or more. The transaction is regulated by state insurance departments, and the North American Securities Administrators Association publishes consumer guidance.
Accelerated death benefit. Many life insurance policies include an accelerated death benefit rider that allows the policyholder to access part of the death benefit while still alive if they have a terminal illness or chronic care needs. The exact terms vary by policy, but the rider can provide tax-free funds to pay for care without selling the policy. Check the policy or call the insurer.
Long-term care conversion. Some life insurance policies can be exchanged tax-free for a long-term care insurance policy or a long-term care annuity through a 1035 exchange. This is a complex transaction that requires careful planning with an insurance professional and ideally a financial advisor.
The general principle: an unneeded life insurance policy is often a hidden source of funds. Do not let it lapse without exploring the alternatives.
Source 6: Reverse mortgage (with caveats)
A reverse mortgage is a loan against home equity that does not require monthly payments, with the loan and accrued interest becoming due when the borrower dies, sells the home, or moves out permanently. For older adults who own their home outright or have substantial equity, a reverse mortgage can convert that equity into cash to pay for care.
The catch, and it is a significant one, is that the reverse mortgage requires the borrower to continue living in the home as a primary residence. If the borrower moves out for more than twelve months (which is what happens when they move into a residential care home), the loan typically becomes due. There are two situations where this still works:
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One spouse moves into care, the other stays home. If a married couple has a reverse mortgage and one spouse moves into a care home while the other remains in the house, the loan does not become due. The spouse who stayed home can use the reverse mortgage proceeds to pay for the care home placement of the spouse who moved.
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The goal is in-home care, not residential care. If the family is choosing between in-home care and residential care, a reverse mortgage can fund in-home care for years and may delay or eliminate the need for residential placement.
If neither of those situations applies, a reverse mortgage is usually the wrong tool for funding residential care. Selling the home outright is often a better option because it avoids the high origination fees and accruing interest of the reverse mortgage. The federal government’s HUD reverse mortgage guidance is the authoritative source on the rules.
Source 7: State-funded supplemental programs
Beyond Medicaid, most states have smaller assistance programs that can supplement other funding sources for residential care. These programs are usually funded by state general funds, lottery revenue, or tobacco settlement money, and they tend to be modest in size but can be meaningful when stacked with other sources.
Examples include:
- Washington State Supplementary Payment: provides a supplemental cash payment for SSI recipients in adult family homes.
- California Cash Assistance Program for Immigrants (CAPI): provides SSI-equivalent payments for legal immigrants who do not qualify for federal SSI.
- Optional State Supplements: many states add a state supplement to the federal SSI payment for residents in licensed care settings.
- State adult care subsidies: some states have small grant programs for low-income older adults in licensed residential care.
These programs are not advertised. The best way to find them is to call your local Area Agency on Aging through the Eldercare Locator. The intake worker can usually tell you within a few minutes what state-specific options exist for your situation and how to apply.
How to stack the sources
Most families end up combining three to four of the sources above. Here are some realistic combinations:
Combination A: Wartime veteran, modest savings.
- Social Security: $1,800/month
- VA Aid and Attendance: $2,358/month
- Family contribution: $1,000/month
- Total: $5,158/month, enough to cover a typical six-bed home in most markets.
Combination B: Surviving spouse, long-term care insurance, modest savings.
- Social Security survivor benefit: $1,400/month
- Long-term care insurance: $4,500/month (after 60-day elimination period)
- Family contribution: $500/month
- Total: $6,400/month, comfortably covering a six-bed home in most markets.
Combination C: Lower-income widow, dementia, Medicaid.
- Social Security: $1,200/month (paid to home as resident contribution toward room and board)
- SSI supplement: $200/month
- Medicaid HCBS waiver: covers care services portion of cost directly to home
- Total: covers full cost in a Medicaid-participating adult family home in Washington, Oregon, or similar state.
Combination D: Higher-income retiree, long savings runway.
- Social Security: $2,200/month
- Pension: $1,800/month
- Investment income: $2,000/month
- Out-of-pocket from savings: $1,500/month
- Total: $7,500/month, fully private-pay, no other source needed for now.
The right combination for your family depends on the parent’s military history, their savings, their insurance, their state of residence, and their care needs. There is no single answer. The goal of stacking is to extend the runway as long as possible.
Mistakes to avoid
- Spending down too fast. Burning through savings before exploring the other sources means missing the chance to use them.
- Waiting until the savings are gone to apply for benefits. VA Aid and Attendance takes six to twelve months. Medicaid takes one to three months plus waitlist time. Long-term care insurance has an elimination period. Apply early and have backup cash for the waiting period.
- Hiring an unaccredited “benefits planner.” Federal law prohibits charging for VA application assistance. Use VSO volunteers (American Legion, VFW, DAV) or a VA-accredited attorney. For Medicaid planning, use an elder law attorney certified by the National Academy of Elder Law Attorneys.
- Letting an old life insurance policy lapse. Always check whether the policy has a cash value, an accelerated death benefit, or settlement value before letting it go.
- Assuming the parent is “over the limit” for everything. Run the actual numbers. Most income limits are net of medical expenses, and care home costs count as medical expenses for these calculations.
The next step
The single most useful action you can take this week is to call your local Area Agency on Aging through the Eldercare Locator and ask for a benefits screening. The intake conversation is free, and the AAA can usually tell you within thirty minutes which of the seven sources above are likely to apply to your situation. From there, you can start the applications that take the longest (VA Aid and Attendance, Medicaid) while continuing to explore the others.
For more detail on the largest single source for low-income families, see our Medicaid guide. For wartime veterans and surviving spouses, see our Aid and Attendance guide. And for the underlying cost picture you are trying to fund, see our cost guide.
Sources and further reading: Social Security Administration — SSI Program; Medicaid.gov — Home and Community Based Services; VA — Aid and Attendance and Housebound Benefits; HUD — Home Equity Conversion Mortgages; National Association of Insurance Commissioners — Long-Term Care Insurance; Eldercare Locator; National Academy of Elder Law Attorneys.