What Is Long-Term Care Insurance?

Quick Answer

Long-term care insurance helps pay expenses for long-term assistance with daily living that many people need as they get older. These include the cost of home health aides, assisted living, nursing home care and other expenses typically not covered by Medicare or health insurance.

A long term care nurse walking with a patient using a walker in a nice park.

As people age, there's a high probability they'll eventually need assistance with activities of daily living, such as bathing, dressing or managing medications. With the cost of in-home or nursing home care averaging from $4,500 to over $9,000 a month, how will you pay for it all? Long-term care insurance is a policy you can buy to help cover the cost of long-term care at home or in a nursing home should you ever need it.

What Is Long-Term Care Insurance?

Long-term care insurance can pay for both medical and non-medical care, such as help managing chronic health conditions, getting in and out of bed, and bathing. Medicare and most health insurance generally doesn't cover this type of long-term care.

If one spouse needs long-term care, the cost can quickly drain your retirement fund and leave the other spouse struggling to pay bills. Long-term care insurance can fill the gap by reimbursing you for covered long-term care expenses, which may include home health aides, assisted living facilities or nursing homes.

Plans vary, but you generally become eligible for benefits when a doctor certifies that you have cognitive impairment, can't perform activities of daily living or need long-term care for other reasons. There's typically a 30-, 60- or 90-day elimination period before the insurance starts to reimburse covered expenses.

Several insurance carriers sell long-term care insurance. Some employers also have group plans you can purchase. There are two different types of long-term care insurance: traditional and hybrid.

Traditional Long-Term Care Insurance

Also called stand-alone or individual long-term care insurance, this coverage works similarly to health insurance: You pay premiums monthly or annually.

  • Once you qualify for long-term care, the policy reimburses the cost up to your policy limits.
  • Generally, after you start receiving long-term care, you no longer pay premiums.
  • Most buyers choose stand-alone long-term care policies with a maximum monthly benefit of $3,000 to $6,000, according to the American Association for Long-Term Care Insurance (AALTCI).
  • You can also buy policies that increase the benefit amount annually, such as by 3% or 5%, to keep pace with inflation.
  • Insurers can't raise traditional long-term care insurance premiums based on your individual health. However, they may increase premiums for a "class" of people, such as a certain age group.
  • If premiums rise too high, you may have to reduce your coverage to lower the cost or drop the policy and forfeit the money you've spent.

Hybrid Long-Term Care Insurance

Hybrid long-term care insurance is also called asset-based, combination or linked-benefit coverage. This type of policy is typically a rider to an annuity or permanent life insurance policy, which is added at extra cost.

  • Depending on the policy, it may reimburse your long-term care expenses or pay out a set benefit each month.
  • If the hybrid long-term care insurance is associated with a life insurance policy, any long-term care benefits you use will reduce the death benefit the life insurance pays out. If you don't use up the full long-term care benefit, your heirs typically receive the remainder at your death.
  • Hybrid plans are significantly more expensive than traditional plans. However, premiums for hybrid plans are guaranteed not to rise.
  • You usually have the option to pay premiums over time or make one lump-sum payment.

Pros and Cons of Long-Term Care Insurance

Before purchasing long-term care insurance, carefully consider its advantages and downsides.

Pros of Long-Term Care Insurance

  • You'll have more choices for how you want to be cared for. For example, you may be able to stay in your home rather than moving to a nursing care facility.
  • You can avoid draining your retirement savings or spending down your assets to pay for your care, which could leave your spouse without enough to live on.
  • Premiums for tax-qualified plans may be tax deductible, which can help reduce the cost of coverage. Most traditional plans are tax-qualified; not all hybrid plans are.
  • Benefits from tax-qualified insurance plans generally aren't considered income, so you won't pay income taxes on them.
  • Generally, any unused benefit from a hybrid long-term care insurance policy goes to your heirs at your death.

Cons of Long-Term Care Insurance

  • Long-term care insurance can be expensive, and may not fit all budgets.
  • Premiums for traditional long-term care insurance may rise over time. If you can't afford the payments, you could forfeit your coverage—and the money you've spent on premiums.
  • Depending on your age and health, you may not qualify for coverage.
  • If you buy traditional long-term care coverage and never use it, you will have spent money for nothing.

How Much Does Long-Term Care Insurance Cost?

Prices for long-term care insurance can vary widely. On average, a couple age 55 in good health would pay $2,080 annually for a traditional plan with $165,000 in coverage, according to 2024 data from the AALTCI. The same plan with 3% annual inflation coverage would cost $5,025.

At 65, the same couple would pay $3,750 annually for $165,000 in coverage or $7,150 for a plan with 3% inflation coverage.

Hybrid long-term care insurance policies cost more than traditional policies. A hybrid policy for a couple aged 55 would cost an average of $11,000 annually, AALTCI data shows.

Key factors affecting your long-term care premiums include:

  • Age: The older you get, the more likely you are to need care.
  • Health: The worse your health is when you apply for long-term care insurance, the more you'll pay.
  • Gender: Because women live longer on average, they typically pay more for long-term care insurance than men.
  • Amount of coverage: Policies with more benefits and fewer limitations cost more. Long-term care policies with inflation protection cost more than those without.
  • Insurance carrier: Each insurance company sets premiums differently, so shop around and compare your options.

Is Long-Term Care Insurance Worth It?

Although long-term care insurance can provide peace of mind, the cost can put it out of reach for many. The National Association of Insurance Commissioners advises against buying long-term care insurance if:

  • Your sole income is from Social Security or Supplemental Security Income (SSI)
  • You are on Medicaid
  • You have few assets
  • You frequently struggle to meet basic expenses
  • You can't afford the premiums

However, long-term care insurance may be a smart purchase if:

  • You have significant assets or a high income
  • You can afford the premiums, including any future increases
  • You want to avoid spending most of your assets on long-term care

A Shopper's Guide to Long-Term Care Insurance, available from the NAIC, offers advice to help you decide if long-term care insurance is right for you.

The Bottom Line

Because coverage and costs can vary widely from one policy to another, purchasing long-term care insurance can be complex. Your financial planner can advise you on how long-term care insurance fits into your financial plan and help you choose a policy. You can also work with an insurance agent or broker to choose the best policy for your needs.

No matter what your age, maintaining a good credit score can help keep your options open, giving you more ways to pay for health care expenses. Consider signing up for free credit monitoring from Experian. It helps you keep tabs on your financial health so you can quickly address any issues with your credit.