What Is Long-Term Care Insurance? A Complete Guide

Long-term care insurance is a type of coverage designed to help pay for extended care services that regular health insurance and Medicare do not cover. According to the Administration for Community Living (ACL), roughly 56 percent of Americans turning 65 today will need some form of long-term care during their lifetime. Despite that, only about 3 percent of adults over age 50 carry a long-term care insurance policy. Understanding what long-term care insurance is and how it works can help you make an informed decision about protecting your financial future.

What Is Long-Term Care?

Long-term care refers to a range of services and support that help people meet their personal care needs over an extended period. Unlike medical care that aims to cure an illness or injury, long-term care focuses on helping people live as independently and safely as possible when they can no longer care for themselves. Long-term care can last for months, years, or even indefinitely.

The most common types of long-term care include:

• Nursing home care: Around-the-clock skilled nursing and custodial care in a residential facility. The national median cost for a private room in a nursing home is approximately $10,965 per month (ACL, 2024 data).
• Assisted living: Residential communities that provide personal care assistance, meals, and social activities while allowing more independence than a nursing home. The national median cost is approximately $5,900 per month.
• Home care: Professional caregivers who come to your home to assist with daily activities such as bathing, dressing, cooking, and medication management. Home care can range from a few hours a week to full-time, 24-hour assistance.
• Adult day care: Supervised programs during daytime hours that provide social activities, meals, and health monitoring. Adult day care gives family caregivers a break while keeping their loved one engaged and safe.

Who Needs Long-Term Care Insurance?

The need for long-term care increases as you age and can be triggered by chronic illness, disability, or cognitive decline. The ACL reports that women need long-term care for an average of 3.2 years, while men need it for an average of 2.3 years. Some people will need care for much longer, especially those with conditions like Alzheimer's disease.

Long-term care insurance is most appropriate for people who:

• Have significant assets they want to protect from being depleted by care costs
• Want to maintain independence and choose where they receive care
• Do not want to burden family members with caregiving responsibilities
• Have a family history of conditions that often lead to long-term care needs, such as dementia or stroke
• Have moderate to high income that disqualifies them from Medicaid but is not enough to comfortably self-insure against long-term care costs

People with very low assets may qualify for Medicaid, which does cover long-term care. Those who are very wealthy may choose to self-insure and pay for care out of pocket. Long-term care insurance fills the gap for the majority of people who fall somewhere in between.

What Does Long-Term Care Insurance Cover?

Long-term care insurance policies vary, but most cover a broad range of care settings and services. The key feature is that coverage typically follows you wherever you receive care, whether in a facility, in your home, or in a community setting.

Most policies cover:

• Nursing home and skilled nursing facility care
• Assisted living facility care
• In-home care from licensed or certified home health aides
• Adult day care and community-based care programs
• Respite care that gives family caregivers temporary relief
• Hospice care in some policies

Policies do not typically cover care provided by family members unless they are licensed professionals, and they generally exclude care related to alcohol or drug addiction and self-inflicted injuries.

Benefit Triggers: How Benefits Are Activated

Before your long-term care insurance policy begins paying benefits, you must meet specific criteria known as benefit triggers. Most policies use two standard benefit triggers that are consistent across the industry.

Activities of Daily Living (ADLs)

The most common benefit trigger requires that you need substantial help with at least two of the six activities of daily living:

1. Bathing: Washing your body in a tub, shower, or by sponge bath
2. Dressing: Putting on and taking off clothing, including any necessary braces or prosthetics
3. Eating: Feeding yourself once food has been prepared
4. Transferring: Moving in and out of a bed, chair, or wheelchair
5. Toileting: Using the restroom, including getting on and off the toilet
6. Continence: Controlling bladder and bowel functions

Cognitive Impairment

The second standard benefit trigger is severe cognitive impairment, such as Alzheimer's disease, dementia, or other conditions that require substantial supervision to protect you from threats to your health and safety. A licensed health care practitioner must certify the condition through a clinical assessment.

Types of Long-Term Care Insurance Policies

There are two main types of long-term care insurance policies available today. Each has its own advantages and tradeoffs.

Traditional Long-Term Care Insurance

Traditional long-term care insurance is a standalone policy with annual or monthly premiums. It pays a daily or monthly benefit amount when you meet the benefit triggers. Traditional policies offer flexibility in choosing your benefit amount, benefit period, elimination period, and inflation protection options. However, premiums can increase over time if the insurance company raises rates across an entire class of policyholders. If you never need long-term care, you do not receive your premium payments back.

Hybrid (Combination) Policies

Hybrid policies combine long-term care coverage with a life insurance policy or an annuity. These products have grown significantly in popularity in recent years. If you need long-term care, the policy pays for it from a pool of benefits. If you never need care, your beneficiaries receive a death benefit. Some hybrid policies also allow you to surrender the policy for a return of your premium. The tradeoff is that hybrid policies generally require a larger upfront premium, often as a single lump-sum payment or a series of payments over 5 to 10 years.

How Premiums Work

The cost of long-term care insurance depends on several factors, including your age at the time of purchase, your health, the benefit amount you select, the benefit period, the elimination period, and any inflation protection options. Women typically pay more than men because they tend to live longer and use long-term care services more often.

As a general benchmark, a 55-year-old man might pay around $950 per year for a policy with a total benefit pool of about $165,000, while a 55-year-old woman might pay approximately $1,500 per year for the same coverage. Couples can often save by purchasing shared-care or joint policies. To learn more about costs, read our guide on how much long-term care costs.

Key premium factors to understand:

• Daily or monthly benefit amount: The maximum the policy will pay per day or per month for care services. Higher benefit amounts mean higher premiums.
• Benefit period: How long the policy will pay benefits, typically ranging from 2 to 5 years. Some policies offer lifetime benefits at significantly higher premiums.
• Elimination period: The waiting period (usually 30, 60, or 90 days) before benefits begin after you qualify. A longer elimination period lowers your premium but means you pay out of pocket for care during that time.
• Inflation protection: An optional rider that increases your benefit amount over time to keep pace with rising care costs. Compound inflation protection is the most valuable but also the most expensive option.

When to Buy Long-Term Care Insurance

Timing your purchase is one of the most important decisions when it comes to long-term care insurance. The ideal window is generally between ages 50 and 65, though this depends on your health, financial situation, and family history. See our detailed guide on when to buy long-term care insurance for more information.

The advantages of buying earlier include lower premiums that are locked in at your purchase age, a greater likelihood of qualifying based on health, and longer inflation protection growth if you choose that option. The disadvantage is that you pay premiums for a longer period before potentially needing care. Waiting too long risks being declined due to health issues, facing significantly higher premiums, or missing the opportunity altogether.

Pros and Cons of Long-Term Care Insurance

Before purchasing a policy, it helps to weigh the benefits against the drawbacks.

Advantages of long-term care insurance:

• Protects your savings and assets from being depleted by care costs that can exceed $131,000 per year for nursing home care
• Gives you more choices about where and how you receive care
• Reduces the financial and emotional burden on your family members
• May provide tax benefits, as premiums on qualified policies are tax-deductible for some taxpayers

Disadvantages of long-term care insurance:

• Premiums can be expensive, especially if you buy later in life or include comprehensive inflation protection
• Traditional policies may lose all premiums paid if you never need long-term care
• Insurance companies can raise premiums on traditional policies, sometimes significantly
• Health underwriting means you may not qualify if you wait too long or already have certain health conditions

Consult a tax professional for your specific situation regarding any potential tax deductions for long-term care insurance premiums.

Planning Ahead for Long-Term Care

The most important step you can take is to start planning early. Long-term care is a reality that most Americans will face, and the costs can be financially devastating without a plan. Whether you decide to purchase a traditional long-term care insurance policy, explore a hybrid policy, or develop a different savings strategy, having a clear plan in place will give you and your family peace of mind. Understanding what Medicare does and does not cover is an essential first step.

Talk to your family about your preferences for care, research the costs of care in your area, and consider speaking with a financial advisor who specializes in retirement and long-term care planning. The decisions you make now can have a significant impact on your quality of life and financial security in the years ahead.