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Long-Term Insurance: Planning for Your Future

As many as 70% of people currently turning 65 will need long-term care sometime during their lifetime. Unfortunately, long-term care can be expensive. According to Genworth’s 2021 Cost of Care Survey, national median costs of care were $9,034 a month for a private room in a nursing home facility, $4,500 a month for care in an assisted living facility, and $5,148 a month for the assistance of a home health aide. If you are a senior on a fixed budget, you may not be able to afford these prices. 

If you have Medicare or a traditional medical insurance policy, you may also be unpleasantly surprised to learn that neither option pays for most long-term care. While Medicaid does include long-term care among its covered benefits, unless you have a very low income you won’t typically qualify for benefits. Fortunately, long-term care insurance can fill any gaps that exist in your coverage and reduce your future long-term care costs. 

In this article, we  explain how long-term care insurance works, its costs and benefits, and what factors to consider when looking for a policy. Further, we  discuss alternative options for seniors who need financial assistance with their long-term care but who don’t want to purchase long-term care insurance.

What Is Long-Term Care Insurance?

Long-term care insurance covers costs associated with long-term services and supports that seniors receive in the home, an adult day care, an assisted living community, and/or a skilled nursing facility. Long term care insurance also known as  "custodial care" or "long-term services and supports" covers  medical and non-medical care for individuals  who have a chronic illness or disability. 

Policies may pay a set daily or monthly care allowance or may issue reimbursements for the exact cost of expenses and payments may be made to either policyholders or directly to service providers. Most policies have set payout limits, though a few policies may offer unlimited benefits. Similarly, some policies may only provide coverage for a set period of time, while others may offer life-long coverage. 

In exchange for long-term insurance benefits, policy holders must pay a premium, typically structured as monthly payments. This amount varies based on factors such as policy holder age, policy coverage length and payment limits, and optional included benefits such as inflation protection. However, most seniors should expect to pay between $250 and $1,000 each month for their policy. It is important to know that insurance companies may raise your policy premium if their projected future claim costs increase. Always seek professional assistance when shopping for long-term care insurance so you are aware of terms and conditions.    

Who Can Get Long-Term Care Insurance?

While people in their 40s or 50s can get a long-term care insurance policy and pay lower premiums than those who purchase one when they are older, this means that you may be stuck paying premiums for decades before you will actually use your long-term care insurance coverage. However, policy premiums are generally much higher for those who purchase one at the age of 70 or older. If you develop serious health conditions by this age you may no longer qualify for a policy at all, so waiting too long may also be a bad financial decision.

For these reasons, financial advisors recommend shopping for a long-term care policy between the age of 60 and 65. Purchasing one earlier than this will result in years of payments for unused benefits, while waiting until you’re 70 or older may result in unaffordable premiums (or disqualify you if your health declines). It is important to mention that these age recommendations assume that seniors are in overall good health and do not require long-term care services. Frail health or current long-term care needs may disqualify individuals from receiving long-term insurance, or may result in limited coverage or coverage that requires larger than standard payments.   

What Does Long-Term Care Insurance Cover?

Long-term care insurance covers medical and non-medical care that addresses the health and personal needs of individuals with disabilities or chronic illnesses. This includes help with personal care and the activities of daily living such as toileting, dressing, bathing, and eating. Policies may also cover homemaker services, such as cooking and cleaning, as long as personal care services are also needed and received.   

Long-term care services can take place in the home, an adult day care, an assisted living community, or a skilled nursing facility. While many policies are comprehensive and will cover care in any of these settings, others may have limitations on where services can be provided. In some cases, family members can also receive payments for the in-home care they provide to their loved ones.

To summarize, long-term care insurance covers the following:

  • Medical and non-medical care for those with disabilities and chronic illnesses 
  • Assistance with the activities of daily living such as bathing, dressing, and eating
  • Homemaker services, such as cooking and cleaning, when personal care services are also needed

This care can be provided in some or all of the following settings:

  • A patient’s home
  • Adult day care
  • Assisted living communities
  • Hospice care
  • Respite care
  • Memory care facilities
  • Nursing homes

How Much Does Long-Term Care Insurance Cost?

According to Consumer Affairs, the best rates for long-term care insurance are for seniors aged 65 and in good health. A summary of the average annual premiums for long-term care insurance based on different factors such as age, gender, and health status is provided in the table below.

Average annual premiums for long-term care insurance in 2020 

Age 55Age 65 (in overall good health)Age 65 (some health issues present)
Single male$1,700$1,400$2,100
Single female$2,675$2,100$3,100

*The above rates are for policies with initial benefits valued at $164,000 at age 55 and valued at $386,500 at age 85.

As the above table demonstrates, multiple factors affect the cost of long-term health insurance. Women pay more because they typically live longer than men and thus need coverage for longer as well as file more insurance claims. Once health issues are present, premiums increase for both genders, as the odds increase that they will need long-term care. Married couples also tend to pay less when buying a policy that covers both individuals, as opposed to purchasing policies separately. However, costs also vary depending on other factors, such as geographic location and provider. For these reasons, it is important to ask for quotes and compare options.   

What Are The Benefits of Long-Term Care Insurance?

Summarized below are several significant benefits to having a long-term health insurance policy in place. 

Provides Peace of Mind

You don’t want to be in a position where you find that your health is rapidly declining and you have no plan in place to help cover the costs of the care you need. Medicare as well as many private health insurance companies will not typically cover long-term care that is considered nonmedical, such as assistance with the activities of daily living, which is the main type of service that long-term care recipients need. Without an alternative plan, you may be solely responsible for paying for these services. 

Protects Your Savings

Consumer Affairs reports that long-term care for the last five years of life will cost an estimated $233,000 to $367,000 for most people and, on average, Americans spend $140,000 out-of-pocket on long-term care (last updates on this data in 2022). In contrast, purchasing long-term care insurance when 65 and in good health may cost between $1,000 and $2,000 a year. For many people, the benefits of getting long-term care insurance make financial sense.  

Allows for Customization

Long-term care insurance policies are more customizable than other options. Policyholders can decide what type of care they want coverage for, the amount of benefits they want and over what period of time, and more. Other alternatives don’t allow for these many options based on individual needs and preferences.    

What Are Some Drawbacks of Long-Term Care Insurance?

In addition to benefits, there are also some drawbacks to purchasing long-term care insurance, such as those listed below. 

Better Alternatives May Be Available

Make sure you don’t buy a long-term care insurance policy if you have other options that may ultimately cost you less, such as significant savings or home equity that you can access. Alternatively, if you have family that can help with your care, this may also be a way to avoid paying for services and would make long-term care insurance an unnecessary expense.

If you qualify as having a low income and meet the eligibility requirements in your state, you may qualify for Medicaid, which includes long-term care benefits. The Older Americans Act and Department of Veterans Affairs also pay for the long-term care of certain qualifying individuals. Those who receive assistance from these programs may find that a long-term care insurance policy may be a substantial cost with minimal benefit.  

Future Costs Are Unknown

Many long-term care insurance companies raise the annual premiums on their policies when they anticipate increases in claim costs. Most people’s income will decline as they get older, so there is a chance they may no longer be able to afford these higher policy premiums.

You May Not Use Benefits

You could pay the premiums for a long term care policy for several years and never end up needing long term care or using your benefits. However, this is impossible to predict and some may want the assurance that there is a plan in place just in case. 

What Should You Look for In A Long-Term Care Insurance Policy?

Long-term care insurance policies vary considerably in many ways. The following list includes some of the factors you may want to consider as you look for the best policy for your situation and needs. 

    • Daily Allowance vs. Expenses Incurred: Determine if it would make more sense to select a policy with an unchanging daily care allowance or a policy that reimburses you varying amounts depending on your actual expenses. 
    • Care allowance: This is the amount that certain policies pay either daily or monthly to cover the costs of long-term care. When looking at care allowance plans, realize that the costs of health care may change dramatically between now and the time that you require care and that historically they have risen at levels that surpass the rate of inflation.
    • Inflation Protection: Years may pass before you need to use your long-term care insurance benefits. With  inflation protection, your benefits will increase over time as the costs of long term care services also increase. Failure to have such a provision can significantly reduce the value of your benefits by the time you file your first claim. 
    • Types of Care: Determine what types of care are covered by the policy and if it includes care you may need such as non-medical care, companion care, and/or special care for seniors with Alzheimer’s memory care. 
    • Care Setting: You may want to select a policy that will cover care in different settings, including nursing homes, assisted living facilities, or at home. Some policies only cover care received in some of these. Determine how many options you may need. 
    • Non-Care Expenses: Figure out if you want a policy that will also cover medications, home medical equipment, or other items and what it would cost to have these included. 
    • Premiums: Long-term care insurance policies typically require policyholders to pay monthly premiums that increase over time. An exception to this is if a single lump-sum premium payment was paid when purchasing a policy, in which case premium rates are guaranteed. Otherwise, determine if you can afford the current premium now as well as in the future if it should increase, considering possible changes to your finances. 
    • Tax Qualified: Some plans are tax-qualified and aren’t considered taxable income. Further, the costs of their premiums can be deducted as medical expenses. Determine if you could benefit from this type of policy and if it is an option. 
    • Payout Duration: Some policies may only cover a few years of care, while others offer lifelong overage. Lifelong coverage is typically more expensive. On average, skilled nursing facility stays last less than 3 years while assisted living stays last less than 2 years, so odds are that you will not need a policy with benefits beyond a few years. 
    • Deductible: The deductible is the out-of-pocket amount policyholders must pay before their policy will begin to make payments for services. Determine how much you can afford to pay, keeping in mind that your income will likely decline in the future.  
    • Elimination Period:  This period is a set number of days that policyholders must wait before their long-term care will be covered and it begins when they first receive care. Policies will only pay for care that’s still needed after the elimination period is over. Ensure you have coverage in place for this period of time, such as Medicare which covers short nursing home stays.
    • Nonforfeiture: Policies with nonforfeiture features protect you if you miss one or more premium payment and your policy lapses. You may still be able to get reduced benefits for the original term, full benefits for a shorter term, or a partial refund of paid premiums if your policy has these protections in place. Otherwise, your policy could be canceled.
    • Cancellation by Insurance Company: Find out if renewal of a policy is guaranteed or if it can be canceled by the insurance company and under what circumstances.  

How To Sign Up For Long-Term Care Insurance

Companies that sell long-term care insurance policies must comply with state-specific regulations. According to, there are over 100 companies in the United States that offer long-term care insurance, but only between 15 and 20 of these sell a majority of the policies. If interested in purchasing a long-term care insurance policy, a great first step is to contact your state’s Department of Insurance to find companies that sell them.  

State Partnership Programs are another option for those that want long-term care insurance. These programs connect private Partnership-qualified (PQ) insurance policies with Medicaid. PQ policies offer comprehensive benefits for short time periods and are required to include inflation protection. Under these state programs, PQ policyholders can apply for Medicaid once their policy maximum is reached if care is still needed. Further, Medicaid asset limits increase for these individuals under these circumstances so that those who would normally be disqualified may still be eligible for benefits. Availability of these partnership programs vary, and to see if your state offers one, you should reach out to your state’s Department of Insurance

Both public and private employers may also offer group long-term care programs to their employees as an optional benefit. Employees of the federal government can visit the Federal Long Term Care Insurance Program website for further information about possible long-term care coverage.  

What Are Some Alternatives to Long-Term Care Insurance for Seniors?

Long-term care insurance may not be the best choice for everyone. There are alternative options available that can help seniors afford the costs of long-term care. A description of these is included below.

Short-Term Care Insurance

These are insurance policies that pay between $100 and $200 daily for up to a year. Due to their shorter benefit period, they are generally less expensive than other forms of healthcare coverage, making them an affordable option for seniors on a fixed income. Those who don’t qualify for a long-term care insurance policy may also find that they still meet short-term care insurance criteria. 

Below are some additional potential benefits of short-term care insurance as well as potential drawbacks. 

Potential Benefits of Short-Term Care Insurance

  • Eligibility criteria is less restrictive, so more individuals qualify. 
  • Premiums are usually less than long-term care insurance, as policy coverage periods are shorter.
  • Benefits may begin immediately without elimination periods. 

Potential Drawbacks of Short-Term Care Insurance

  • If someone needs years of care it will extend beyond the terms of short-term care insurance and will not be covered.
  • Individuals older than the age range of 85 to 89 may not qualify.

Critical Care or Critical Illness Insurance

Critical Care or Critical Illness Insurance provides lump-sum cash payments to those who are diagnosed with serious illnesses or conditions such as cancer or a heart attack. Large companies may include daily or monthly benefits for inpatient rehab and continuing care within their policies. This type of insurance may be a good option for those who have a family history of certain life-threatening diseases and have a greater chance of developing the same conditions. However, critical care or critical illness insurance will not cover long-term care costs due to conditions diagnosed prior to when a policy was purchased.

Potential Drawbacks of Critical Care or Critical Illness Insurance

  • Will not cover long-term care for problems linked to past diagnoses. Problems must be due to a new injury or illness.

Potential Benefits of Critical Care or Critical Illness Insurance

  • Policies usually cost less than long-term care insurance

Annuities with Long-Term Care Riders

This type of annuity is purchased with a large upfront premium. Purchasers receive tax-free monthly payments for a period of time that go towards their long-term care costs. These policies often allow greater flexibility for how their benefits are used, making them an attractive alternative to the stricter terms of traditional long-term care insurance. However, their large upfront costs may be more than some seniors can afford. For those who want to learn more about this option, Investopedia has detailed articles explaining both annuities and riders.    

Potential Benefits of Annuities with Long-Term Care Riders

  • Individuals rejected by traditional long-term care insurance companies can still take out an annuity 
  • There is greater flexibility in how funds may be used.
  • Unused funds can be redeemed or passed on to heirs.

Potential Drawbacks of Annuities with Long-Term Care Riders

  • Must be purchased upfront and premiums can be tens of thousands of dollars.
  • Money is often locked in for a specified time period.


Deferred Annuities

While immediate annuities can provide funds within a year, deferred annuities are intended as a longer-term investment. In fact, deferred annuities are typically purchased while individuals are still working in anticipation of future long-term needs following retirement. Between when the annuity is first purchased and when payments are disbursed, the annuity contract earns interest and grows in value. Purchasers then receive monthly payments when they reach an older age specified in their contract. These funds can go towards the costs of any long-term care they require. More information on deferred annuities is provided in this article by Forbes Advisor

Potential Benefits of Deferred Annuities

  • Individuals rejected by traditional long-term care insurance companies can still take out an annuity
  • Unused funds can be redeemed or passed on to heirs.

Potential Drawbacks of Deferred Annuities

  • Annuity holders who need long-term care before they reach the age when they receive distributions may not have funds to cover expenses.
  • If you attempt to withdraw a lump sum before you are at least 59½ , you could be charged early withdrawal penalties and income taxes.

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Those with certain disabilities or diseases have more obstacles to overcome when searching for a quality assisted living home. If you have questions, we are here to help provide the answers. Give our senior care advocates a call and read our guides for specific information and resources related to your or your loved one’s condition.

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