U.S. Department of Health and Human Services data says that someone who turns 65 today has an almost 70% chance of needing some form of long-term care (LTC) services in his or her remaining years—a daunting prospect, indeed.

While suffering from a disability or needing assistance with daily activities may not be something you want to think about, you do need to prepare for potential related costs should the situation arise. This is precisely where long-term care insurance policies come into play, which can help cover a host of services that typically aren’t covered by regular health insurance or Medicare.

Long-term care vs. long-term disability (LTD) insurance

Before we discuss this in more detail, let's clarify the difference between long-term care and long-term disability (LTD) insurance.

Long-term disability (LTD) policies are designed to replace a portion of the income you’d lose if you cannot work due to an injury or illness. While musculoskeletal disorders such as fractures and joint issues are the most common reasons for long-term disability claims, other common reasons include cancer, pregnancy-related complications, and mental health issues such as depression and anxiety. Some policies even cover cardiovascular and circulatory disorders such as heart attacks and coronary artery disease.

On the other hand, individuals often invest in long-term care insurance policies to ensure they’re covered during their retirement years and can address potential nursing home or home health aide expenses if they can no longer care for themselves.

What does long-term care insurance cover?

Most long-term care policies will reimburse you if you’re unable to perform or need significant help performing at least two common tasks, also known as activities of daily living (ADLs). This includes bathing, dressing, eating, toileting, continence, and transferring (walking or moving oneself from a bed). Long-term care policies also cover severe cognitive impairment, such as dementia, memory loss, or Alzheimer’s symptoms.

To qualify for long-term care benefits, your licensed care provider must certify your care is expected to last at least 90 days. It’s important to note that you can receive long-term care services either in a nursing home or your own home.

The odds of requiring long-term care

Upon reaching age 65, individuals are nearly 70% likely to require some form of long-term care (LTC) over the course of their remaining years. Women need an average of 3.7 years of care, while men require 2.2 years. Additionally, 20% of 65 year olds require care for over five years.

Regarding the type of care needed, 65% of individuals utilize home-based long-term care services for an average of two years. This typically involves assistance with bathing, dressing, medication management, and supervision, allowing them to maintain as much independence as possible in their own homes. The remaining 35% of individuals who require LTC services spend an average of one year in facilities such as nursing homes or assisted living facilities.

How much does long-term care insurance cost?

Long-term care insurance is expensive, but exact costs vary depending on the amount of coverage and specific LTC carrier. For example, a recent American Association for Long-Term Care Insurance (AALTCI) study reports the average annual cost for a 55-year-old male is $2,220 (for a policy covering $165,000 in benefits with a 3% growth rate to account for inflation). The same policy costs more for a 55-year-old woman ($3,700), as females tend to live longer than their male counterparts and thus file more frequent claims. Fast forward 10 years in age, and the annual price for the same policy increases to $3,135 and $5,265 for 65-year-old males and females, respectively.

When you should buy long-term care insurance

While individual circumstances vary—especially if you have a family history of illness at a young age—experts recommend you obtain a policy in your mid-to-late fifties so you can lock in a lower premium.

There are several reasons for this, primarily that you must qualify for long-term care insurance—meaning you must be healthy to buy coverage. Many people begin seeing a slight decline in health in their 50s, explaining why 34% of those aged 60-64 who submitted long-term care applications were denied in 2021. This number rose to over 38% for those between the ages of 65 and 69 and was significantly higher (47.2%) among people aged 70+.

Another reason to buy a policy when you’re younger is that long-term care premiums are based on your age at the time you apply. That said, avoid doing so too early as people aged 70+ file more than 92% of long-term insurance claims. In other words, if you buy a policy in your 40s, you’ll likely pay premiums for more than two decades before you ever file a claim.

Where to buy a long-term care policy

You have a few options here including an insurance agent, financial advisor, or insurance broker. Some employers offer coverage to employees, and you can also look into state-based options: partnerships between long-term care insurance companies and state Medicaid programs.

Key concepts to know before buying a long-term care policy

First up is the elimination period, meaning the time frame in which you’ll need to pay for long-term care services out of pocket before your insurer begins reimbursing you. In general, the shorter the elimination period, the more expensive the policy. Common elimination periods are 30, 60, and 90 days, but some policies may dictate this duration consist of consecutive days of disability rather than a set time period.

Your daily benefit amount, meanwhile, is the daily dollar amount you’ll be entitled to as soon as the policy is triggered. Choosing the right daily benefit level is a balancing act between obtaining an affordable premium and adequate protection.

As for your benefit period, that’s the total amount of time—often two, three, five, or unlimited years—the insurance company will pay benefits. Some policies offer a dollar lifetime benefit, which is the total maximum amount of money your policy will pay.

Finally, inflation riders—also called “automatic benefit increase riders”—boost your daily benefits on an automatic basis each year, particularly important as long-term care costs typically increase approximately 3-5% annually.

Long-term care policy benefits

Long-term care policies typically cover out-of-pocket expenses that accompany in-home, assisted living, and nursing home care: services not covered by Medicare or other public programs.

These policies offer a few key benefits. For starters, they help protect your savings. As we mentioned earlier, long-term care isn’t cheap; you’ll therefore need a tool to help protect you from spending all your savings on healthcare needs.

Long-term care policies also offer you the benefit of more care choices, particularly important since Medicare only covers long-term care in very limited circumstances. Furthermore, even if you qualify for Medicaid, you’re still restricted to facilities that accept payments from the program—with Medicaid typically not providing coverage for in-home care or some nursing home services such as private rooms.

Long-term care insurance policy alternatives

A few common options to cover expenses in lieu of a long-term care policy include:

Buying a hybrid insurance policy

As an alternative to a stand-alone long-term care policy, you can consider adding a long-term care rider to your life insurance policy (sometimes referred to as a “hybrid” long-term care policy).

These riders—offered for most permanent and many term policies—allow you to access a portion of the policy’s death benefit every month to pay for long-term care (with the same qualifying criteria often applying to receive benefits through your rider).

One big advantage of an LTC rider over a standalone LTC policy is that if you don’t use the care benefit, the policy still pays the death benefit—whereas standalone policies can feel like wasted money if you never file a claim.

According to Policygenuis.com, the average cost of affixing an LTC rider to your life insurance policy can add upwards of $600 to $800 to your premiums on an annual basis.

Self-funding long-term care expenses

It's difficult (if not impossible!) to predict if you'll ever need long-term care insurance, but you could spend a substantial amount of your savings without it—as self-funding long-term care is often very expensive. Long-term care costs also vary significantly, with 2023 national monthly median costs noted here (per Genworth):

- Home health aide: $6,292

- Adult daycare: $2,058

- Assisted living facility: $5,350

- Nursing home, private room: $9,733

- Nursing home, semi-private room: $8,699

Should you ever need at-home and nursing home care, therefore, you could find yourself spending over $179,892 for a year of home health aide services and a one-year stay in a semi-private nursing home room.

It's crucial to understand that these figures are by no means static; long-term care costs are on an upward trajectory, with the median annual cost of a home health aide jumping from $42,168 in 2004 to $61,776 in 2021. As the U.S. population ages, these costs are expected to rise further—underscoring the need for long-term care insurance.

Final thoughts: is long-term care insurance worth it?

Insurance is the one thing nobody wants to pay for. It’s expensive, and frankly, you may not ever wind up needing it. Yet without proper coverage, you could be just one catastrophe away from serious financial consequences. Due to the complex nature of long-term care products, we recommend you speak to a professional who can provide you with the clarity and guidance you need to make confident decisions in this regard.

Have questions about long-term care? Schedule a FREE discovery call with one of our CFP® professionals.

FAQs

Yes, you can deduct unreimbursed costs for long-term care as a medical expense provided they meet certain requirements as outlined in IRS Publication 502. Eligible expenses often include medically necessary in-home, assisted living, and nursing-home services prescribed by a licensed health care practitioner, with the care prescribed for someone who is chronically ill—unable to perform at least two of six ADLs for a period of 90 days—to qualify. To claim a deduction, you must itemize deductions on your tax return; remember that itemized deductions for medical expenses are only allowed to the extent they exceed 7.5% of your adjusted gross income.
If you have a traditional long-term care policy rather than a hybrid that includes life insurance, you may qualify for a limited tax deduction for your policy premiums. As with the long-term care services deduction, this is an itemized deduction that only applies to premiums exceeding 7.5% of your adjusted gross income. The deduction also has an age-related cap; the younger you are, the less you can deduct.
The answer ultimately depends on the type of long-term care insurance policy you own. For example, those with a traditional LTC policy can potentially pay premiums without receiving a financial benefit (note that some policies allow for a surviving spouse to make use of unused benefits). On the flip side, a hybrid long-term care insurance policy could allow you to receive a tax-free death benefit you can pass on to your heirs.
While price is an important factor when considering an LTC insurance provider, you should also verify their ratings: researching customer reviews to enjoy a better idea of their service quality. Financial ratings, meanwhile—published through A.M. Best, Fitch Ratings, Standard & Poors, or Moody's Investor Service—can provide insight into company stability and thus their ability to cover your claims should you ever need them to.

What Is Long-Term Care Insurance and Is It Worth It?