Before you sign the residency agreement, get two documents and read them: the entrance fee refund and amortization schedule, and the community’s most recent audited financial statements and actuarial study. The marketing folder will not contain either one. Ask for them by name, in writing, and give yourself a week with them. A continuing care retirement community, increasingly marketed as a life plan community, is simultaneously a housing decision, a health care decision, and an unsecured loan to a nonprofit corporation, and only the third one is invisible in the brochure.
The deadline that governs is the rescission window. Several states require a period, commonly around seven days after signing the contract or after receipt of the disclosure statement, during which a resident may cancel and recover the deposit. Florida’s continuing care law at Chapter 651 of the Florida Statutes is one example of a state that provides a statutory rescission right. Find your state’s window, write the expiration date on the front of the contract, and do not let it pass while you are still waiting for a document you requested.
Where does an existing life insurance policy fit in all this? Usually in one of two places: as the estate replacement that makes a non-refundable or declining-refund contract emotionally tolerable, or as a source of liquidity to bridge the gap between paying the entrance fee and selling the house. Which one applies changes the answer completely.
In This Article
- The three contract types, and why the type sets everything else
- The entrance fee and what refundable actually means
- Due diligence on the community itself
- Ranking the ways to fund the entrance fee
- When selling the policy is the wrong answer here
- Questions to take to the sales appointment
- Frequently Asked Questions
The three contract types, and why the type sets everything else
Type A, extensive or life care. The highest entrance fee and the highest monthly fee, in exchange for unlimited or nearly unlimited access to assisted living, memory care, and skilled nursing at little or no increase in the monthly fee. Functionally, a Type A contract bundles a long-term care insurance policy into the housing agreement. The community bears the morbidity risk.
Type B, modified. A defined amount of higher-level care is included, for example a set number of days per year or a discounted rate thereafter, with market rates applying beyond it. Lower entrance fee, shared risk.
Type C, fee-for-service. Independent living is guaranteed and priority access to higher levels of care is provided, but care is paid at market rates when needed. Lowest entrance fee, all morbidity risk on the resident.
This classification determines whether an existing life policy earmarked for care costs is still needed. If you sign a Type A contract, you have purchased care coverage, and a policy bought to fund future nursing home costs may genuinely be redundant. If you sign a Type C contract, you have purchased housing and priority access, not care, and the cost exposure at 88 is exactly as large as it was before you moved. Families conflate these constantly, and the conflation drives the wrong decision about the policy. The general version of this analysis is at paying for care with no LTC insurance.
The entrance fee and what refundable actually means
Entrance fees vary enormously by market and unit, ranging from roughly $100,000 at modest communities to well over a million dollars for large units in high-cost metropolitan areas. The refund structure matters more than the headline number.
Declining or amortizing refund. The most common traditional structure. A typical schedule refunds the fee less an initial administrative percentage, then amortizes the remainder at a stated rate per month, frequently around 2 percent, until nothing remains after roughly four years. Move in at 78 and die at 90 and the estate receives nothing.
Partially refundable. Often 50, 75, or 90 percent of the entrance fee is guaranteed to be returned regardless of length of stay. The entrance fee for a 90 percent refundable contract is materially higher than for a declining one on the same unit, sometimes 40 to 60 percent higher.
Refund timing is the fine print that matters most. Very few contracts pay a refund on a fixed date. The overwhelmingly common term is that the refund is paid after the unit has been resold and reoccupied by a new resident who has paid their entrance fee. In a soft market that can take a year or more. Estates plan around a refund that arrives when the real estate market allows it, not when the probate court would like it. Ask specifically: is the refund obligation conditioned on reoccupancy, and is there an outside date after which it is paid regardless.
Two tax points worth raising with your own CPA rather than accepting from a marketing director. First, the IRS has long recognized that a portion of a continuing care entrance fee and monthly fee attributable to future medical care may be deductible as a medical expense under IRC Section 213, in a line of guidance including Revenue Ruling 75-302 and Revenue Ruling 76-481. Communities generally provide residents an annual statement of the deductible portion. Second, a large refundable entrance fee can look like an interest-free loan to the community. IRC Section 7872 addresses below-market loans and contains a specific exception at subsection (g) for certain loans to qualified continuing care facilities, subject to an indexed dollar limitation and definitional requirements at subsection (h). Both of these are reasons to have the contract reviewed by a CPA before signing, not after.
Due diligence on the community itself
You are extending unsecured credit to an operator for the rest of your life. Do the work.
Know your regulator. Continuing care communities are regulated at the state level and the regulator differs. California administers continuing care contracts through the Department of Social Services under the Health and Safety Code. Florida regulates continuing care providers through its Office of Insurance Regulation under Chapter 651. Pennsylvania regulates through the Insurance Department under its Continuing-Care Provider Registration and Disclosure Act. Find the agency for your state, ask whether the community’s disclosure statement is current, and ask whether any enforcement actions exist.
Read the audited financials. Look for occupancy rate, debt service coverage ratio, days cash on hand, and the trend in each over three years. An occupancy rate under 85 percent and falling is the single most useful warning sign available to a layperson.
Read the actuarial study if one exists. Some states require periodic actuarial certification that the community can meet its obligations to current residents. Its absence in a state that requires it is a question worth asking.
Ask what happens in bankruptcy. Residents’ entrance fee refund claims are generally unsecured, and the 2009 Chapter 11 filing by Erickson Retirement Communities remains the most-cited example of what that means in practice. Ask whether refunds are secured by anything, whether they are held in escrow or a statutory reserve, and what priority residents hold.
Ask the residents. Specifically ask people who have been through a transfer to a higher level of care, because that is where contracts either perform or disappoint. The comparable analysis for other care settings is at funding an assisted living move and calculating a private-pay runway.
| Type A (life care) | Type B (modified) | Type C (fee-for-service) | |
|---|---|---|---|
| Entrance fee | Highest | Middle | Lowest |
| Monthly fee | Highest | Middle | Lowest |
| Higher-level care included | Unlimited or nearly so | A defined amount, then discounted | None; market rates apply |
| Who bears care-cost risk | The community | Shared | The resident |
| Effect on need for LTC coverage | Largely replaces it | Reduces it | Does not reduce it |
| Effect on need for life insurance | Depends on refundability | Depends on refundability | Unchanged or greater |
| Typical estate impact | Large fee, refund structure decides | Moderate | Smaller fee, larger later care costs |
Ranking the ways to fund the entrance fee
Sell the house. The intended and usually the correct source. The complication is timing: most communities require the entrance fee at or shortly after occupancy, and houses do not sell on that schedule. Bridge financing for the gap is a smaller and more solvable problem than people treat it as.
Bridge loan against the house. Many lenders and some communities offer short-term bridge products specifically for this transition. Compare the total interest cost over an expected six to nine month bridge against the alternatives; it is often the cheapest bridge available.
Investment liquidation. Straightforward, with the tax consequence of realized gains. Sequence sales with your advisor across tax years where possible.
Reverse mortgage. Generally a poor fit here, because a HECM requires the home to remain the borrower’s principal residence, and moving permanently into a community triggers the loan becoming due. It can work for a spouse remaining at home, and rarely otherwise. See a reverse mortgage compared with a settlement and home equity versus a life settlement.
Keep the life policy and pay premiums. Ranks first whenever a non-refundable or declining-refund contract has effectively consumed the estate, because the death benefit becomes the inheritance. This is a genuinely underappreciated point: a declining-refund CCRC contract and a life insurance policy are complements, not substitutes.
Reduced paid-up on the life policy. Ends premiums while preserving a smaller guaranteed benefit. Fits a household whose monthly fee has just risen substantially and whose cash flow is now tight.
Policy loan. Available for a short bridge and it compounds. Acceptable for six months against a signed home sale contract, poor as an open-ended plan.
Surrender the policy. Real cash, immediate, no waiting. Correct when the policy is small, the insured is healthy, and the entrance fee is the binding constraint.
Life settlement. A legitimate funding source for an insured who is older, whose health has declined since issue, and whose coverage is no longer needed because a Type A contract now covers care. It takes months, so it is a planning tool rather than a closing tool. The move-related version is at funding an assisted living move by selling a policy.
When selling the policy is the wrong answer here
When the entrance fee is non-refundable or declining. This is the most important sentence on the page. If the community will keep the entrance fee, the death benefit may be the only inheritance left. Selling both the house and the policy to fund a fee that amortizes to zero leaves an estate of nothing, and families rarely see that clearly at the moment of the move.
When the contract is Type C. A fee-for-service contract does not cover care. The exposure to a five-year skilled nursing stay is undiminished by the move. Coverage that was appropriate before is appropriate after.
When the timeline is a closing timeline. A secondary-market transaction runs months from application to funding, through medical records, a life expectancy report, bidding, closing documents, a carrier ownership change, and a rescission period. It cannot be relied on to produce cash by a specific date. Use a bridge loan for a bridge.
When Medicaid may enter the picture. Some communities have policies about residents who exhaust assets, and Medicaid eligibility interacts with both the entrance fee refund and any policy proceeds. Converting a policy into cash near an application draws attention under the look-back. See how life insurance counts as a Medicaid asset and involve an elder law attorney in your state before, not after.
When the rescission window has not expired. Do not dispose of assets to fund a contract you can still cancel. Wait out the window.
When the insured is healthy. The recurring truth on this site: pricing improves as life expectancy shortens, and a healthy 74-year-old will usually see low offers or none. Reducing the face amount or surrendering may simply be better.
Pine Lake Life Solutions does not purchase policies and is not licensed in every state. A free policy review in this situation is most useful before the contract is signed, when the refund structure and the contract type can still be chosen with the policy in mind. Send the policy cover page and the community’s refund schedule to (305) 209-7183. This page is educational information and is not legal, tax, or financial advice; have your own CPA and attorney review the residency agreement.
Questions to take to the sales appointment
Print these and ask them in this order. The quality of the answers tells you as much as the answers themselves.
On the contract. Which type is this, A, B, or C, and exactly what higher levels of care are included at no increase in the monthly fee? What is the historical monthly fee increase for each of the last ten years, in dollars, not in a general reassurance? What happens to the monthly fee if one spouse moves to skilled nursing and the other stays in the independent unit?
On the refund. Show me the amortization schedule. Is the refund conditioned on the unit being resold and reoccupied? Is there an outside date after which it is paid regardless? Is the refund obligation secured, escrowed, or held in a statutory reserve? What is the current average time from a resident’s departure to a refund payment, over the last three years?
On the finances. May I have the last three years of audited financial statements and the current disclosure statement filed with the state? What is current occupancy? What is days cash on hand? Has the community restructured debt or missed a covenant in the last five years?
On what happens if money runs out. Is there a benevolence or resident assistance fund, and is it discretionary or contractual? What is the policy for a resident who exhausts assets? Does the community accept Medicaid in its skilled nursing beds?
On leaving. What is the rescission window and when exactly does it expire for me? What is the notice period to leave voluntarily, and what does the refund look like if I leave in year two?
A community that answers all of this in writing without friction is telling you something good. One that treats the questions as unusual is telling you something too. The broader cost-reduction picture for this stage of life is at downsizing retirement expenses and the waitlist dynamics at funding a spot on a waitlist.
Frequently Asked Questions
Is a refundable entrance fee actually refundable?
The percentage is usually contractual, but the timing rarely is. Most agreements pay the refund only after the unit has been resold and reoccupied by a new resident who has paid an entrance fee, which in a slow market can take a year or more. Ask whether there is an outside date after which the refund is paid regardless, and whether the obligation is escrowed, secured, or held in a statutory reserve.
Does moving into a CCRC mean I no longer need life insurance?
It depends on the contract type and the refund structure, not on the move itself. A Type A life care contract largely replaces long-term care coverage but does nothing for the estate if the entrance fee amortizes to zero, in which case the death benefit may be the entire inheritance. A Type C fee-for-service contract replaces neither. Answer both questions separately before deciding anything.
Can I use a reverse mortgage to pay the entrance fee?
Usually not for the person moving. A home equity conversion mortgage requires the home to remain the borrower’s principal residence, and a permanent move into a community generally triggers the loan becoming due. It can work where one spouse remains in the home. For the far more common timing problem of paying an entrance fee before the house sells, a short-term bridge loan is normally the cheaper and cleaner tool.
Are entrance fees and monthly fees tax deductible?
A portion attributable to future medical care may be deductible as a medical expense under IRC Section 213, a treatment reflected in longstanding IRS guidance including Revenue Ruling 75-302 and Revenue Ruling 76-481. Communities typically issue residents an annual statement showing the medical portion. The percentage varies widely by community and by year, and the deduction is subject to the usual adjusted gross income threshold. Confirm with your own CPA.
What happens to my entrance fee if the community goes bankrupt?
Refund claims are generally unsecured, which places residents behind secured lenders in a restructuring. The 2009 Chapter 11 filing by Erickson Retirement Communities is the most-cited example of what that can look like. Before signing, ask whether refunds are escrowed or backed by a statutory reserve, review three years of audited financials, and check the community’s filings with your state’s regulator.
When should I get a policy review, before or after the move?
Before, and ideally before the residency agreement is signed. Whether a policy should be kept, reduced, or exited depends on the contract type and refund structure you choose, and those are still choices until you sign. A review takes the policy cover page and the community’s refund schedule and takes days, not months. There is no fee and no obligation. The number is (305) 209-7183.
Find out what your policy is worth — free, confidential, no obligation.
A 15-minute educational review covers your eligibility, every alternative, and a realistic view of what each path would net you.
Related Reading
- Entering Assisted Living Funding
- Assisted Living Waitlist Funding
- Sell Policy Assisted Living Move
- Downsizing Retirement Expenses
- Home Equity Vs Life Settlement
- Reverse Mortgage Vs Settlement
- Nursing Home Private Pay Runway
- No Ltc Insurance Pay For Care
- Life Insurance Counts Medicaid Asset
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.