Financial Planning for Long-Term Dementia Care: Costs, Insurance, and Aid Programs

Financial Planning for Long-Term Dementia Care

Financial Planning for Long-Term Dementia Care: Costs, Insurance, and Aid Programs

The emotional and financial burden of caring for parents or other loved ones can lead to significant stress. Medical News Today identifies the lack of time or money and family issues as major stress factors. While you cannot change your loved one’s condition, proactive financial planning can help ensure quality care while safeguarding family resources.

Your team at AVAD Home Care Solutions has summarized key expenses, insurance options, government aid, and strategies to guide you in managing dementia care costs effectively.

With the average lifetime cost of dementia care exceeding $392,874 per person, proactive financial planning is essential to ensure quality care without depleting family resources.

1. Understanding Dementia Care Costs

Dementia care expenses vary based on care setting, location, and disease progression. We have itemized median costs of care for New Jersey* in 2025:

A. Care Setting Costs

Type of Care	Monthly Cost	Annual Cost
Full-Time Home Care	$5,358 (non-medical aide)	$64,296
Adult Day Care	$2,430 ($81/day)	$29,160
Assisted Living (Memory Care)	$7,000	$84,000
Nursing Home (Private Room)	$12,891	$154,689

* New Jersey is one of the most expensive states in the United States for dementia care

Major Factors Affecting Costs:

• Location (urban vs. rural) 

• Level of Care Needed (early vs. late-stage dementia)

• Facility Amenities (specialized therapies, security features)

B. Additional Expenses

• Medications: ~$177-400/per month 

• Home Modifications (grab bars, ramps): $1,000–$10,000

• Respite Care: $100–$200/day 

  
  

2. Insurance Options for Dementia Care

A. Medicare vs. Medicaid

Program	Coverage	Limitations
Medicare	- Hospital stays, doctor visits, limited skilled nursing (up to 100	- Does not cover long-term custodial care (e.g., assisted living)
Medicaid	individuals will essentially be required to redeem their assets and spend down most of their cash prior to becoming eligible for Medicaid.	individuals will essentially be required to redeem their assets and spend down most of their cash prior to becoming eligible

Tip: Medicaid’s "look-back period" (3–5 years) penalizes asset transfers, plan ahead Medicaid’s "look-back period" (3–5 years) penalizes asset transfers, plan ahead  

B. Long-Term Care Insurance (LTCI)

• Best purchased in mid-50s to early 60’s when premium rates are lower as individuals are less likely to show signs of cognitive decline

• Covers assistance with daily living (ADL) like bathing, dressing, and eating for memory care, in-home, and nursing homes

• Hybrid policies (life insurance +LTC) are more flexible and provide coverage for long-term care and death benefits

C. Veterans Benefits*

• Aid & Assistance

• 24/7 nursing and medical care

• Physical therapy

• Helping with daily tasks (like bathing, dressing, making meals, and taking medicine)

• Comfort care and help with managing pain

• Support for caregivers who may need skilled help or a break so they can work, travel, or run errands

  
  

• You may be able to get community residential (live-in) care in settings such as those listed below. In each setting, a trained professional will provide care and support with daily tasks 24 hours a day.

* Care is available in various settings – with some operated by the VA and others run by the state or community organizations.

State Veterans Homes: Offer memory care at reduced rates.

3. Funding Strategies & Aid Programs

A. Personal Assets & Savings

• Retirement Accounts: Possible eligibility for withdrawals penalties for IRA/401k accounts to be waived if dementia is disabling 

• Personal Property: The sale of art and jewelry can be a source of additional income and offset the cost of care

• Reverse Mortgages: Converts home equity into tax-free income (age 62+) 

• Life Insurance: Surrender policies for cash value or sell via a vatical settlement (selling the policy to a third-party investor).

  
  

B. Government & Nonprofit Assistance

• Social Security Disability (SSDI):  Individuals diagnosed with Younger Onset Alzheimer's may be eligible for a Compassionate Allowance that provides benefits sooner.

  
  

• Alzheimer’s Association Grants: Alzheimer’s NJ provides $1000 towards the cost of qualified community-based respite care. 

  
  

• State HCBS Waivers: Individuals can receive home and community-based services based on their assessed needs and individualized budget through program enrollment.

C. Tax Breaks

• Medical Expense Deduction: Qualified out-of-pocket care costs exceeding 7.5% of the adjusted gross income for 2024.

  
  

• Dependent Care Credit: You may be able to reduce your federal income tax If you paid someone to care for your family member so you could work or look for work.

  
  

4. Proactive Planning Tips

1. Start Early: Discuss care preferences and finances with your parent or loved one before or soon after diagnosis

   
   

2. Consult Experts:

   • Elder law attorneys for Medicaid planning

   • Certified Dementia Practitioners for phone support 973-729-6601

   • Blend Funding Sources: Combine personal savings, insurance, and aid programs

Dementia care costs are expensive, and strategic planning is essential to easing the burden. Exploring how to take advantage of insurance, veterans' benefits, Medicaid, and asset conversions is a valuable investment of your time. Planning ahead helps to access the best care options while preserving family finances.

Need Help?

The dedicated team at AVAD Home Solutions is here to help you. Let us know how we can help in the comments section Call or contact us at icare@avadnj.com or 609-505-1082.