Long-Term Care Insurance: Costs, Coverage & When to Buy

Nearly 70% of Americans turning 65 will need long-term care services at some point, yet Medicare covers only limited skilled nursing care—not the extended custodial care most people actually need. Long-term care insurance helps cover the costs of nursing homes, assisted living facilities, and in-home care when you can no longer perform daily activities independently. With nursing home costs exceeding $127,000 per year and assisted living averaging $70,800 annually, an LTC policy can protect your retirement savings and give your family financial peace of mind. This guide explains what long-term care insurance covers, how much policies cost at different ages, and how to decide if and when to buy coverage.

What Is Long-Term Care Insurance?

Long-term care insurance is a type of policy that pays for services and support when you can no longer care for yourself due to chronic illness, disability, or cognitive impairment. Unlike health insurance, which covers medical treatment, long-term care insurance covers assistance with everyday activities that become difficult as you age or develop health conditions.

Long-term care typically includes help with activities of daily living (ADLs) such as:

• Bathing — Getting in and out of the tub or shower
• Dressing — Putting on and taking off clothes
• Eating — Feeding yourself (not preparing meals)
• Toileting — Using the bathroom
• Transferring — Moving between bed, chair, and standing
• Continence — Maintaining bladder and bowel control

Most long-term care policies pay benefits when you cannot perform two or more ADLs independently, or when you have a cognitive impairment like dementia that requires supervision for your safety.

What Long-Term Care Insurance Covers

A comprehensive LTC policy typically covers care in multiple settings:

Nursing Home Care: Round-the-clock skilled nursing and custodial care in a licensed facility. This is the most expensive form of long-term care.

Assisted Living Facilities: Residential communities that provide help with daily activities, meals, and medication management while maintaining some independence.

In-Home Care: Professional caregivers who come to your home to help with personal care, housekeeping, and medical tasks. Many people prefer this option to maintain their independence.

Adult Day Care: Daytime supervision and activities at a community center, often used while family caregivers work.

Memory Care: Specialized facilities or units designed for people with Alzheimer's disease or other forms of dementia.

The True Cost of Long-Term Care in 2024

Long-term care costs have increased substantially in recent years, making planning essential. According to the CareScout Cost of Care Survey 2024, here are the national median costs for different types of care:

These are national medians—costs vary significantly by location. Urban areas and states like New York, California, and Connecticut typically have higher costs, while rural areas and southern states may be lower.

How Long Will You Need Care?

According to the Administration for Community Living, the average person who reaches age 65 will need long-term care for:

• Women: 3.7 years on average
• Men: 2.2 years on average
• Overall: About 3 years for those who need any care

However, these averages mask significant variation. About one-third of people turning 65 may never need long-term care services, while 20% will need care for five years or longer. This uncertainty makes planning particularly challenging.

What Medicare Does (and Doesn't) Cover

A common misconception is that Medicare will cover long-term care costs. In reality, Medicare's coverage is extremely limited and comes with strict requirements.

Medicare Skilled Nursing Facility Coverage (2026)

Medicare SNF Requirements:

• You must have a qualifying 3-day inpatient hospital stay
• You must enter the skilled nursing facility within 30 days of leaving the hospital
• You must require daily skilled nursing or therapy services
• Maximum coverage is 100 days per benefit period

The Critical Distinction: Medicare covers skilled nursing care for recovery from illness or surgery. It does not cover custodial care—the ongoing assistance with daily activities that most long-term care involves. If you need help bathing, dressing, and eating due to dementia or frailty, Medicare will not pay.

This is why understanding health insurance and its limitations is crucial for retirement planning. Medicare is health insurance for those 65 and older, but it was never designed to cover long-term care.

How Much Does Long-Term Care Insurance Cost?

LTC insurance premiums depend on several factors:

• Age at purchase — The younger you buy, the lower your premium
• Gender — Women pay more due to longer life expectancy and care duration
• Benefit amount — Higher daily/monthly benefits cost more
• Benefit period — Longer coverage periods increase premiums
• Inflation protection — Compound inflation riders add significant cost
• Elimination period — Longer waiting periods before benefits begin reduce premiums
• Health status — Pre-existing conditions may increase rates or disqualify you

Sample Premium Costs by Age

According to the American Association for Long-Term Care Insurance (AALTCI), here are typical annual premiums for a policy with a $165,000 initial benefit pool and 3% compound inflation protection:

Key observations:

• Women pay 78-80% more than men for identical coverage because they live longer and use care for more years
• Couples purchasing together receive significant discounts compared to two individual policies
• Waiting until 65 to buy costs 50-70% more than buying at 55
• Prices vary up to 26% between insurers for the same coverage, so shopping around matters

Understanding Your Policy Options

Daily or Monthly Benefit Amount: This is the maximum the policy will pay per day or month. Common amounts range from $150 to $300+ per day. Match this to your local care costs.

Benefit Period: How long benefits will last—typically 2, 3, 5 years, or lifetime. A 3-year period covers the average need, but consider a longer period for more protection.

Elimination Period: The waiting period before benefits begin (similar to a deductible). Options range from 0 to 90 days. A 90-day elimination period lowers premiums but means you pay out-of-pocket for the first three months of care.

Inflation Protection: Perhaps the most important feature. With care costs rising 7-10% annually, a policy without inflation protection may be inadequate when you actually need care. Options include:

• 3% compound growth — Benefit grows each year
• 5% compound growth — Faster growth, higher premium
• Simple inflation — Grows by a fixed percentage of the original amount
• Future purchase option — Buy additional coverage later at higher rates

Tax Benefits of Long-Term Care Insurance

Premiums for "tax-qualified" long-term care insurance policies may be tax-deductible as a medical expense. According to IRS Publication 502, the amount you can include depends on your age.

2025 IRS Limits for LTC Insurance Premium Deductions

Important considerations:

• These amounts count toward your total medical expense deduction
• Medical expenses are only deductible to the extent they exceed 7.5% of your adjusted gross income
• Self-employed individuals may deduct LTC premiums as a business expense, subject to these limits
• Some states offer additional tax incentives for LTC insurance

If you're using a Health Savings Account (HSA), you can pay LTC insurance premiums with tax-free HSA funds, up to the age-based limits above. This is one of the most tax-efficient ways to pay for long-term care insurance.

When to Buy Long-Term Care Insurance

Timing your purchase involves balancing several factors:

The Case for Buying in Your 50s

Lower premiums: Rates are significantly cheaper when you're younger. Buying at 55 instead of 65 can save thousands over your lifetime.

Better health: You must pass medical underwriting to qualify. Waiting risks developing conditions that could increase rates or disqualify you entirely.

Longer coverage: With compound inflation protection, your benefit has more years to grow before you need it.

Locked-in rates: While premiums aren't completely guaranteed (insurers can request state-approved rate increases), your rates are based on your health at purchase.

The Case for Waiting

Premium dollars: Money spent on premiums can't be invested elsewhere. If you never need care, you've paid for unused insurance.

Policy uncertainty: The LTC insurance market has seen significant changes, with some insurers exiting and others raising rates. The industry may continue to evolve.

Alternative options: Some people choose to self-insure or rely on other strategies.

The Sweet Spot

Most financial advisors recommend purchasing long-term care insurance between ages 55 and 65. This range offers:

• Premiums that are still affordable
• High likelihood of passing underwriting
• Sufficient time for benefits to grow with inflation protection
• Enough remaining working years to budget for premiums

Alternatives to Traditional Long-Term Care Insurance

If traditional LTC insurance doesn't fit your situation, consider these alternatives:

Hybrid or Combination Policies

These policies combine life insurance or an annuity with long-term care benefits. If you need care, the policy pays LTC benefits. If you don't need care, your beneficiaries receive a death benefit or you can access cash value.

Pros:

• No "use it or lose it" concern
• Fixed premiums (often single premium)
• Death benefit if you don't need care

Cons:

• Less long-term care coverage per dollar than traditional LTC
• Large upfront premium (often $50,000-$150,000+)
• Less flexibility than separate policies

To understand how these work with life insurance basics, think of them as life insurance policies with an LTC rider that lets you access the death benefit early if you need care.

Self-Insuring

Some wealthy individuals choose to pay for care from savings. This can make sense if you have:

• Substantial liquid assets (typically $2 million+)
• Secure retirement income
• Willingness to spend down assets for care

The math: A 5-year nursing home stay at current costs could exceed $600,000. Add inflation, and self-insuring requires significant resources.

Medicaid Planning

Medicaid pays for long-term care, but only after you've spent down most assets. This is generally a strategy of last resort, not proactive planning. Medicaid planning involves legally restructuring assets to qualify while preserving some wealth for a spouse or heirs.

Important: Medicaid has a 5-year "look-back" period. Asset transfers made within five years of applying may disqualify you or delay eligibility.

Short-Term Care Insurance

A newer product offering limited benefits (typically one year or less) with simpler underwriting. This can supplement savings for those who don't qualify for or can't afford traditional LTC insurance.

Who Should Consider Long-Term Care Insurance?

Long-term care insurance makes the most sense for the "middle market"—people with enough assets to protect but not enough to easily self-insure.

Good candidates for LTC insurance:

• Net worth between $250,000 and $2 million (excluding primary home)
• Retirement income that premiums won't strain
• Desire to protect assets for spouse or heirs
• Family history of conditions requiring long-term care
• Preference to choose their own care options

LTC insurance may not be the best fit if:

• You have limited assets (Medicaid may cover care)
• You're very wealthy (self-insuring may be more efficient)
• You have serious health conditions (may not qualify)
• Premiums would strain your budget

Understanding your overall insurance needs helps determine whether LTC insurance belongs in your financial plan.

How to Shop for Long-Term Care Insurance

If you decide to purchase coverage:

1. Work with a specialist. Independent insurance agents who focus on LTC insurance can compare policies from multiple companies. The same coverage can vary 20%+ between insurers.

2. Get quotes from multiple companies. The NAIC recommends comparing at least three insurers before purchasing.

3. Check company financial strength. LTC insurers must remain solvent for decades. Look for A.M. Best ratings of A or higher.

4. Understand the policy thoroughly. Read the policy summary and ask questions about:

• Benefit triggers (what conditions activate benefits)
• Covered services and settings
• Inflation protection details
• Rate increase history
• Claims process

5. Consider partnership policies. Most states offer Partnership programs that provide additional Medicaid asset protection if you buy a qualifying policy and exhaust your benefits.

6. Don't over-insure. You don't need coverage for 100% of care costs. A policy covering 50-75% of costs, combined with other income and savings, may be sufficient.

Frequently Asked Questions

Conclusion

Long-term care insurance addresses one of the biggest financial risks facing retirees: the potential cost of extended care that can quickly deplete a lifetime of savings. With nearly 70% of Americans over 65 needing some form of long-term care, and costs exceeding $127,000 annually for nursing home care, planning ahead is essential.

The key decision points are:

• Do you need coverage? Consider your assets, family situation, and risk tolerance
• When should you buy? Ages 55-65 offer the best balance of cost and insurability
• What type of policy? Traditional LTC, hybrid life/LTC, or self-insurance
• How much coverage? Match benefits to local care costs with inflation protection

Start by researching current care costs in your area and getting quotes from multiple insurers. Whether you purchase a policy, invest in a hybrid product, or build a dedicated care fund, having a plan prevents a future crisis from becoming a family catastrophe.

Remember that long-term care planning fits within your broader financial picture. Consider how it integrates with your health insurance, retirement savings, and estate planning goals. The best time to plan is before you need care—when you have the most options and the lowest costs.