Long-Term Care Insurance: What Is It, and Can You Afford It?

A nurse helps an elderly woman get dressed for the day.
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Do you ever think about who is going to take care of you when you can’t take care of yourself?

Home health care, assisted living facilities and nursing homes are expensive, and most health and disability insurance policies won’t help pay for them.

Long-term care insurance is one way to offset that often exorbitant cost — if you can afford it.

Long-Term Care Costs How Much?

Each year, Genworth, a company that sells long-term care insurance, conducts a survey of more than 67,700 providers to find out how much different types of care cost. Results from the 2021 survey showed the annual median costs for various services.

  • Adult day care: $20,280
  • Assisted living: $54,000
  • Homemaker services: $59,488, or $26 an hour
  • Home health aide: $61,776, or $27 an hour
  • Semi-private room in a nursing home: $94,900
  • Private room in a nursing home: $108,405

What Is Long-Term Care Insurance?

Long-term care insurance covers expenses regular health insurance and Medicare do not. This includes things like nursing home care, assisted living facilities, in-home medical care, home health aides for routine daily activities, adult day care and home modification.

Benefits kick in when the covered person has dementia or can no longer do at least two of six “activities of daily living” on their own, such as bathing, dressing, eating, getting out of bed and using the toilet.

A doctor usually needs to show that a patient needs long-term care before a policy’s benefits kick in.

Each policy comes with limitations, though. It’s not a blank check for all your future long-term care needs. Policies usually cap the amount paid out per day and the amount paid during your lifetime.

They also include an elimination period before benefits begin. During the elimination period — which can last 30, 60 or 90 days — you’ll have to pay for long-term care services out of pocket before the insurance company starts reimbursing you.

Hybrid Policies

Hybrid policies link a life insurance policy with a long-term care policy. These policies are now much more common than traditional stand-alone LTC policies.

One of their biggest selling points is that even if you don’t end up needing long-term care, the money you paid in premiums isn’t “wasted.” Your family still receives some money after you die, by way of a life insurance payout.

Hybrid policies tend to have a larger upfront cost (think $75,000 and up), but they have fewer issues than traditional policies (more on that shortly).

Typically, the long-term care benefit amount is equal to about five times the premium you pay, said Courtney Wilson, president and founder of Fortify Insurance Group, an independent broker agency.

“For people with more money who are just planning to self-insurance their long-term care needs with, let’s say, $200,000 sitting in a bank account, purchasing a hybrid policy is a way to increase that amount by three, four or even five times what it is worth today,” Wilson said.

The Changing Long-Term Care Insurance Market

Over the last decade, the number of companies selling stand-alone long-term care policies has dwindled, and insurers have increased rates on older policies.

“There are been plenty of stories about people who bought policies in their 50s, now they’re in their 80s, and they’re being told by insurance companies, ‘We’re going to raise your rates by 50%’ because that block of the company’s business is hemorrhaging so badly,” Wilson said.

Over the last decade, fewer people dropped policies and insurance companies paid out more claims than they expected. Insurers also overestimated how much they would earn in investments.

About 49,000 Americans purchased new long-term care insurance policies in 2020 — a big decline from prior years, according to data from the American Association for Long-Term Care Insurance.

A handful of companies — including Northwestern Mutual and Mutual of Omaha — still sell new long-term care policies, but the policies have more modest benefits and cost more.

Insurers are also much more selective about who they approve for traditional policies.

“They’re very controlled and careful,” Wilson explained. “The underwriting process is very strict. It’s harder to get a policy if you take certain medications or have certain health issues.”

This has given rise to hybrid policies. They require more of an upfront sum, unlike the pay-as-you-go premiums traditional long-term care policies feature. But they’re less risky and more readily available — for those who can afford them.

“That’s where things are moving, especially for more affluent clients who have the extra capital to put into policies like this,” Wilson said.

How Much Does Long-Term Care Insurance Cost?

There is no way around it. Long-term care insurance is expensive.

The cost of long-term care insurance depends on several factors.

  • Age and health: You’ll pay more if you’re older than 60 and/or you have several chronic health issues.
  • Gender: Women usually pay more because they often live longer and therefore have a greater chance of making a claim.
  • Marital status: Single people pay more than married couples. Couples can also get a shared rider allowing them to share a pool of benefits, lowering the individual cost for both.
  • The insurance company: Companies charge different prices for similar policies.
  • Coverage: You’ll pay more for a shorter elimination period, higher daily and monthly limits, longer coverage period and annual inflation adjustments.

Due to its high cost, long-term care insurance likely isn’t affordable if you have a low income and little savings.

Traditional Long-Term Care Policies

The average annual premium for a $165,000 policy for a 55-year-old male was $950 in 2022, according to data from the American Association for Long-Term Care Insurance.

But if you want policy benefits to increase 1% per year, annual premiums jump to $1,375.

Females pay higher premiums for long-term care insurance. The national average for a $165,000 policy was $1,500 in 2022 for a 55-year-old female, according to the same data.  A policy with benefits that increase 1% per year costs $2,150 on average.

Hybrid Policy Cost

Hybrid policies generally require a larger upfront payment. Here’s an example.

A healthy 50-year-old man who made a $100,000 lump sum premium payment could get long-term care benefits worth $500,000 or more by the time he’s in his 80s. The death benefit for his family if he died without needing long-term care could be around $120,000, depending on the insurance company.

If you’re young enough, you can spread that initial payment over a few years.

One example Wilson gave was a policy he helped write for a 42-year-old woman who made a $7,500 payment toward the policy for 10 years, for a total of $75,000.

Because the money has so much time to grow before she needs care in her 80s, Wilson said her long-term benefit amount will be nearly $800,000.

If she doesn’t end up needing care, her family will receive about $98,000 in life insurance — about $23,000 more than her initial investment.

Medicare and Medicaid Limitations

For people ages 65 and over, Medicare covers only short nursing home stays, mainly for rehabilitation, and limited home health care options. It does not pay for long-term care.

Medicaid will pay for some long-term care, but it kicks in only if a person has depleted nearly all their financial resources. It does not pay for assisted living, and there are long waiting lists and limited availability for nursing homes.

Some states have partnership programs with insurance companies to encourage people to plan for the expenses that go along with long-term care.

These plans often involve a way to keep some assets and still qualify for Medicaid. Call your state’s insurance department to find out if your state has a partnership plan.

Long-term care is just one thing Medicare doesn’t cover. You’ll likely have to pay for dental, hearing and routine vision care, too.

Should I Buy Long-Term Care Insurance?

Thinking through how you will pay for long-term care is an important part of any financial plan. Don’t wait until you need care to figure it all out.

“If you wait until you’re in your late 60s to look at long-term care insurance, you’ll get sticker shock,” Wilson said. “You really need to start looking at it in your 40s or 50s; otherwise it gets very expensive.”

Long-term care insurance can protect your savings and give you more choices for care. In the bigger picture, it can provide peace of mind knowing that you won’t be putting the burden of your care on family or friends.

If you feel you can cover the cost of care, you might not want to buy long-term care insurance. If you have no assets, Medicaid might provide you the care you need.

“So all of us who are in the middle — not too poor and not too rich — are the potential long-term care (insurance) audience,”  said Steven Weisbart, senior vice president and chief economist of the Insurance Information Institute.

In addition to looking at finances, assess your risk by looking at your current health and longevity in your family.

Buying Long-Term Care Insurance

If you’ve decided to buy long-term care insurance, it’s better to do it sooner rather than later. Buying it earlier will mean lower premiums and an increased chance of acceptance.

“From ages 45 to 55 is the sweet spot,” Wilson said.

Even though a majority of claims do not happen until after age 85, most companies will not issue a new policy to people who are 70 or older.

Expect a medical questionnaire, exam or blood test. Most long-term care insurance companies will exclude people with preexisting conditions or a family history of certain medical issues.

When shopping for plans, make sure you know:

  • The amount of coverage you want on an annual and monthly basis.
  • How much you can afford for out-of-pocket expenses. Knowing this will help you decide the elimination period length you can afford — 30, 60 or 90 days.
  • The number of years you want to be covered.

Long-term health insurance is customizable. Changing the coverage amount and elimination period will influence the policy premium.

“If you want to cut the premium down, buy a long waiting period and a pretty good-sized benefit period,” Weisbart said. “Many people will buy a short waiting period and a small benefit period, which I think defeats the whole point of buying long-term care insurance.”

Alternatives to Long-Term Care Insurance

Long-term care insurance isn’t the only way to pay for care. There are other options, each with its own limitations.

  1. Hybrid policies
    These policies combine life insurance with long-term care insurance. The policy will pay benefits if you need them to pay for long-term care or a death benefit if you don’t. They often require a hefty upfront investment.
  2. Short-term care insurance
    The benefits are similar to long-term care insurance but are capped at one year.
  3. Health savings accounts (HSAs)
    People with a high deductible insurance plan can put pre-tax money aside to pay for health expenses like long-term care by using a health savings account. Stuffing your HSA with money when you’re young and healthy can help cover long-term care costs later.
  4. Long-term care annuities
    These annuities require a larger upfront investment than traditional policies. Medical underwriting tends to be easier though, which can make them a better option for people who fail to qualify for traditional or hybrid long-term care policies.
  5. VA benefits
    Veterans may access long-term care through the U.S. Department of Veterans Affairs.
  6. Home equity
    A home equity line of credit, a reverse mortgage or selling a home can provide money for long-term care.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. She focuses on retirement, Medicare, investing and taxes. 

Tiffani Sherman, a Florida-based freelance reporter, contributed to this story.