Senior living buy-in vs monthly rent

Buy-In or Rental Senior Living: Which One is Best for You?

As if making the decision to move to senior living isn’t difficult enough emotionally, navigating all the details and the lingo can be downright overwhelming. We get it and are here to help. There’s often a lot of confusion around the types of payment models senior living communities offer: buy-in or rental. Let’s explain and help you determine which could be best for your needs.

Payment Models Defined

Quite simply, this is the way in which you will pay for your senior living community’s services. Many communities offer either rental or buy-in. But some communities give you both options so it’s important to understand how they differ.

Rental

You pay a monthly fee based on the level of care you receive (independent living, assisted living, skilled nursing, etc.) with the cost increasing as your needs increase. Your typical monthly fee often includes the following:

• Meals
• Home maintenance
• Housekeeping
• Social activities
• Some utilities
• Emergency call monitoring
• Security

Buy-In

A buy-in or entry fee community is typically a continuing care retirement community (CCRC). A CCRC offers at least three levels of care on one campus. Although there are rental CCRCs as well, in a buy-in situation you would move into independent living and pay an upfront fee in addition to your monthly fee. You could consider this fee as a down payment for your future care should you need to move to assisted living or skilled nursing for example down the road.

The Pros

By and large the main pro of the rental model is the flexibility. You’re not locked into a long-term contract. In addition, you can get many of the same perks of the buy-in option and retain complete control of your assets.

With the buy-in payment model, you’re really giving yourself peace of mind for the long term. Should you need to move to assisted living or skilled nursing, your buy-in may ensure you have priority access. In addition, this money can help to offset those more expensive care costs and is considered a prepaid medical expense by the IRS, so tax deductions may be available. Lastly, you may also have the option for up to 90 percent of your buy-in fee to be returned to your estate or designated beneficiary.

The Cons

In a rental model you don’t have the predictability of knowing now what you’ll pay for future care and having that money set aside. The fear of not being able to pay future health expenses is a top concern for seniors.

The upfront fee for the buy-in model can run into the hundreds of thousands of dollars. Although many fund this through the sale of their house, realistically not everyone can afford it.

What’s Best for Your Needs?

Both rental and buy-in payment models are great options for senior living in the right circumstance. And that’s really what will drive which you choose – your wants and needs for the future as well as your budget.

For more information on moving to a senior living community, check out our Guide to Funding Senior Care & Housing today →

Making a decision to move out of your house and into a senior living community can be quite a journey. Let information be your map. Start by learning industry terminology, and then search senior living options near you or in the area you want to live. It’s also a great idea to talk with friends or family who may already live at a community.

Perhaps most importantly, you should understand the different types of senior living communities — their contract structures and what you can expect to be included. This article will compare and contrast two of the most common senior living options: rental senior living communities and buy-in communities.

Terminology

As you explore your options, you’ll begin to hear several new terms. It can be confusing, so don’t hesitate to pause a conversation and ask for clarification. Here’s a basic glossary to get you started:

Rental senior living community: As it sounds, you’ll pay a monthly fee for your independent living residence. Rentals may or may not offer senior care. If they do, care won’t be included in your independent living monthly fee, and you’ll pay full market rates for the level of care you need.

Life Plan Community: A Life Plan Community requires an initial entrance fee (also known as a “buy-in”) plus a monthly service fee. While there’s an obvious upfront expense, a Life Plan Community offers independent living plus a continuum of senior care, with financial advantages that will save you money over time. Also, a buy-in senior living community often includes more organized activities, amenities and services for residents, though these will vary by community.

CCRC or Continuing Care Retirement Community: This is a different term for a Life Plan Community. They offer the same kinds of services, amenities and contract structures; the terminology just indicates a community’s preference for one term over the other.

Life Care: Technically, Life Care refers to a specific all-inclusive financial contract that requires an entrance fee and includes several financial advantages. However, some communities that offer this contract call themselves a “Life Care community.” Yes, it can get confusing. If you hear this term, remember: All Life Care communities are CCRCs, but not all CCRCs offer Life Care.

Continuum of Care: This is a range of senior care that allows a resident to age in place while getting the care they need. A typical continuum of care includes assisted living, memory care, skilled nursing and rehabilitation services. As it pertains to Life Plan Communities/CCRCs, access to care is assured through your buy-in entrance fee, and it’s usually provided at the community. This article further explains levels within the continuum of care.

The differences between rental and buy-in communities

Most importantly, contracts define each senior living community, essentially detailing how much you’ll pay and what’s included. Details vary by community, but contracts fit into a finite number of structures.

What to expect at a rental community:

A rental community is usually the least expensive path to downsizing and moving into an independent senior living situation. Much like any residential agreement, residents sign a lease for an agreed-upon length of time — often, a year. There’s no entrance fee or buy-in, but there will likely be a security deposit, which may or may not be refundable. At a rental community, if a resident depletes their financial assets and can no longer afford a residence, they have to move out. Typically, there is no benevolence clause in the lease, which would allow lifelong residency regardless of ability to pay.

You can expect a variety of services and amenities built into your monthly payments. These can include meals, housekeeping, maintenance, transportation, and on-site events and activities. It’s worth noting that rental rates can be increased upon renewal of the lease term. These will vary by community.

Some rental communities provide independent senior living only. Others include assisted living services with your monthly fee, either in the residence or within a different area of the community. However, for higher levels of care, such as memory care or skilled nursing, you’ll pay extra for the care you need if they offer it. Otherwise, you’ll have to move to a different provider.

Advantages of a rental community: Cost and flexibility

Cost: With no entrance fee, you save on your initial investment, or rather, your lack thereof. Also, you won’t pay upfront for future care; thus, you’ll only pay for what you need and use.

Flexibility: At a rental community, you’ll pay full rates for senior care. Therefore, there are no qualification requirements regarding preexisting conditions. Such flexibility is also beneficial if a spouse dies and the widowed partner wants to relocate.

What to expect at a buy-in community:

Life Plan Community. CCRC. Continuing Care Retirement Community. Buy-in community.
These terms all refer to a senior living community that offers independent living plus a continuum of care that typically includes assisted living, skilled nursing, rehabilitation services and memory care. Care is provided at the community, eliminating the need for moves in times of duress.

With the upfront investment, a buy-in option may look more expensive. However, the plan for long-term care adds value that’s both tangible and intangible.

As a financial benefit, the entrance fee secures lower rates for any care you may need. The discount varies by community.

The most comprehensive contract (Type A, Life Care) allows for unlimited care at any level with no or minimal increase in your monthly fee.

Other contracts offer more nuanced benefits. For example, a Type B, Modified Plan contract (aka Modified CCRC or Modified Agreement) may offer any of the following benefits:

• You may receive a limited number of free days in the health center, with additional care billed at daily market rates.
• Care may be billed at a minimally discounted rate.
• Care may be billed at an equalized rate, which means if you’re an independent living resident and you need to move to a higher level of care, your monthly service fee will change to be equal to the average of all independent living monthly service fees being charged at that time.

These financial benefits can prove to be a tremendous value when you consider the ever-rising costs of long-term senior care. Use this tool to project the costs of future care in your area. It will help in your decisions about what type of contract is best for you.

Additionally, most entrance fees are partially or fully refundable to you or your estate. The amount of refundability will vary by community, the contract you’ve chosen, and how long you live there.

Advantages of a buy-in community:

Less tangible than financial benefits, but perhaps more profound — many older adults and their families feel this option offers peace of mind not found in rental communities. Whatever the future holds, you know your needs can be met on campus, with rarely a need to relocate to a different care provider.

Often with an entrance fee contract (especially at not-for-profit communities), there’s a benevolence clause. This means if a resident outlives their financial assets, they’ll never be asked to leave. Essentially, once you’re in, you’re guaranteed a place to live for the rest of your life.

Questions to ask as you explore your options

As you narrow down your list of preferred communities, you should make an appointment to visit with a sales counselor, either in person or virtually. Before your conversation, prepare a list of questions. Here are some starter ideas:

• Do you offer a rental option, or is an entrance fee required?
• What services and amenities are included with the monthly fee?
• What levels of care are accessible on-site?
• Is the cost of care fully or partially included in the monthly fee or not at all?
• If there’s an entrance fee, is any portion of it refundable?
• Does the community include a benevolence benefit, ensuring residency for life?

Get answers to these and all your questions before you choose any senior living community. The more you know, the happier you’ll be with your decision.

As you continue your research into senior living communities, it’s good to understand your local options. Use this tool to find a community near you.

Resources:
Genworth Cost of Care
The Senior Care Spectrum
Senior Living Contracts Explained

What is buy in fee?

What is the purpose of entrance fee?