Overview
Long-term care insurance (LTCI) is one tool to protect family finances and caregiving plans from the high cost of extended personal care. Medicare generally does not pay for most long-term custodial care (see Medicare.gov), and private savings or a partner’s income can be depleted quickly when care needs last for years. Deciding whether LTCI makes sense depends on personal health, family history, assets, and how much risk you and your family are willing to accept.
How LTCI policies work — the basics
- Benefit trigger: Most policies pay benefits when a licensed clinician certifies you can’t perform two or more Activities of Daily Living (ADLs) — bathing, dressing, eating, toileting, transferring, or continence — or when you have severe cognitive impairment. Policy definitions vary, so read the contract’s trigger carefully. (AARP provides good baseline definitions.)
- Daily/monthly benefit and benefit pool: Policies pay a daily or monthly maximum up to either a set pool (total benefit) or a benefit period (e.g., 3, 5, or lifetime). For example, a $150 daily benefit with a 3-year pool equals roughly $164,250 in maximum benefits.
- Elimination (waiting) period: Similar to a deductible, this is the number of days you must pay out of pocket before benefits start (commonly 30–180 days).
- Inflation protection: Optional riders increase your benefit over time to keep pace with rising care costs. Inflation protection can be critical for younger buyers because care costs typically rise faster than premiums.
- Nonforfeiture and guaranteed renewability: Look for nonforfeiture options that return value if you cancel and guaranteed-renewable coverage, which protects against insurer cancellation while allowing premium increases across the insurer’s book of business.
When LTCI usually makes sense
Consider LTCI when several of these are true:
- You have substantial assets you want to protect (home equity, retirement savings, investment accounts) and you don’t want to use those assets to pay for care.
- You can comfortably afford premiums without sacrificing retirement savings or high-interest debt repayment.
- You’re relatively healthy and can qualify for coverage without prohibitively high underwriting surcharges (typically ages 50–70 is the common purchase window).
- You prefer to preserve choices about where and how you receive care (private-pay options increase access to quality home care and private rooms in facilities).
- You have little family capacity to provide or coordinate full-time caregiving (so paying for paid care is likely).
- You want to protect a spouse or inheritances from being consumed by care costs.
When LTCI may not make sense
- You have limited assets, low income, or expect to qualify for Medicaid if long-term care becomes necessary (Medicaid’s eligibility rules differ by state and include lookback periods; see Medicaid.gov and our guide on Medicaid Lookback and Long-Term Care Planning Explained).
- You prefer to self-insure (plan to use savings or investments), and you’ve modeled the worst-case cost scenarios and found this viable.
- Affordability: Premiums at your age or after medical underwriting are prohibitively expensive.
- You have hybrid products (linked life insurance or annuities with LTC riders) that already provide a similar hedge — compare total cost and flexibility.
Alternatives and complements to traditional LTCI
- Hybrid policies: Life insurance or annuities with LTC riders can guarantee access to premiums’ cash value or death benefits if LTC is used. These hybrids often appeal to those worried about losing premiums if care isn’t needed.
- Self-insuring: For some families, a well-funded savings/portfolio earmarked for care is preferable. This approach works when the household is comfortable with the risk of a catastrophic care episode.
- Medicaid planning: For lower-income families or those who want to protect a spouse, long-term planning that considers Medicaid rules and lookback periods can be appropriate — often involving trusts and timing of asset transfers (consult an elder-law attorney).
- Veterans’ benefits: Some veterans and surviving spouses qualify for Aid & Attendance benefits that help pay for long-term care.
Costs and timing — what to expect
- Premiums vary by age at purchase, health status, policy features (inflation protection, benefit period), and insurer. Buying younger typically lowers premiums but increases total paid years.
- Underwriting: Insurers will review medical records and may decline applicants with significant preexisting conditions. Early purchase (50s–60s) often offers the best balance of price and likelihood of approval.
- Inflation: Long-term care costs have historically risen faster than general inflation (Genworth’s Cost of Care Survey is a commonly cited source). Without inflation protection, benefits bought at age 60 may be inadequate two decades later.
Real-world examples (anonymized)
- Case A — Preserving estate: A married couple in their early 60s with $1.2M in retirement assets purchased a policy with a 5-year benefit and inflation protection. They considered the policy an estate-insurance tool to avoid selling investments or the house if one spouse needed care.
- Case B — Self-insure decision: A 58-year-old single professional with $400k in retirement savings decided to self-insure and set up a dedicated long-term care subaccount. After modeling five- and ten-year care scenarios, they accepted the risk to avoid high premiums.
- Case C — Hybrid choice: A household in which the applicant couldn’t qualify for a low-cost traditional policy used a hybrid life/LTC product. The hybrid provided a death benefit if LTC was not used and LTC access if needed.
How to evaluate policies — questions to ask
- Exactly what triggers benefits? How do they define ADLs and cognitive impairment?
- What is the elimination period and can you afford it if care starts?
- Does the policy include inflation protection? If so, is it compound or simple?
- Is the policy guaranteed renewable? What circumstances can cause premium increases?
- What is the insurer’s financial strength? Check ratings (A.M. Best, Moody’s).
- How are home-care services defined and reimbursed? Many policies now cover in-home care but limits differ.
Common mistakes and misconceptions
- Relying on Medicare: Medicare generally doesn’t cover custodial long-term care (Medicare.gov). People who believe Medicare will pay often underprepare.
- Waiting too long to buy: Significant health changes can make insurance unaffordable or unavailable.
- Buying the cheapest policy without checking inflation protection or benefit triggers.
Tax and legal considerations
- Some long-term care premiums may be tax-deductible as medical expenses subject to IRS rules and AGI thresholds; limits apply and change by year — consult IRS Publication 502 and your tax advisor before assuming deductibility.
- Federal and state programs (Medicaid) have complex eligibility and lookback rules; consult state Medicaid resources or an elder-law attorney for planning.
How I approach this in practice
In my experience advising families over 15 years, LTCI is most useful when it covers a defined catastrophic risk that would otherwise force liquidation of assets or disrupt family caregiving plans. I recommend running a clear “what-if” scenario: estimate expected care costs in your region (Genworth’s Cost of Care Survey and state data are helpful), model the impact on your balance sheet, and compare that to premium costs and alternative uses of those dollars. Always get quotes from multiple carriers and confirm policy language rather than rely on marketing brochures.
Useful resources and internal reading
- For basic decision criteria, see our glossary piece: Understanding Long-Term Care Insurance: Who Needs It?
- For funding comparisons and DIY strategies, read: Long-Term Care Risk: Insurance Options and DIY Funding Strategies
- To understand Medicaid timing and lookback rules: Medicaid Lookback and Long-Term Care Planning Explained
Authoritative sources
- Genworth: Cost of Care Survey (refer to the most recent edition for regional costs).
- Medicare.gov: Coverage rules for long-term care.
- AARP: Long-term care insurance basics and consumer guides.
- Consumer Financial Protection Bureau (consumerfinance.gov): Consumer advice on buying LTC insurance.
- IRS Publication 502: Medical and Dental Expenses (for potential premium deductibility).
Professional disclaimer
This article is educational and not individualized financial, legal, or tax advice. Insurance suitability depends on personal facts and state laws. Consult a licensed insurance agent, certified financial planner, or elder-law attorney for decisions affecting your situation.
Final thoughts
Long-term care insurance can protect family resources, maintain care choices, and reduce caregiver burden — but it’s not right for everyone. The right decision balances your health, assets, family situation, and tolerance for risk. Start planning early, compare options, and document preferred caregiving arrangements so that financial planning supports the personal care outcomes your family values.
