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Published: Mar 25, 2024 17 min read

Coming to terms with the fact that, at some point, you may need assistance with basic tasks as you get older isn't easy. But life is unpredictable, and being prepared is smart. If a time comes when you're unable to perform activities of daily living (ADLs) without assistance, long-term care (LTC) insurance can protect your savings and assets against the high — and ever increasing — cost of care.

However, the best long-term care insurance policies often come with high premiums. Moreover, depending on the policy you purchase, you may lose your investment if you never require long-term care.

So, is long-term care insurance worth it? Here's everything you need to know to decide for yourself.

Table of contents:

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What is long-term care insurance?

Long-term care insurance pays or reimburses policyholders for services generally not covered under typical health insurance, disability insurance or life insurance policies. It can help individuals with disabilities caused by cognitive impairment (such as dementia or Alzheimer’s disease), chronic illness or advanced age pay for care services.

Generally, long-term care policies start paying benefits once the insured requires assistance in performing basic daily tasks like eating and bathing. And most plans cover care in a variety of settings, including at the policyholder's home or at nursing homes, assisted living facilities or adult day cares.

When you research long-term care insurance policies, you'll likely come across several options:

  • Stand-alone or traditional long-term care insurance: These policies pay a monthly or even daily benefit amount over a set period, up to a lifetime maximum. Besides premiums that are not guaranteed and may increase in the future, most policies have waiting periods before coverage starts and during which the policyholder must pay for care out of pocket. If the policyholder never requires long-term care services, there is no way for them to recoup their investment or pass the benefit to someone else.
  • Hybrid life and long-term care insurance: These are generally permanent life insurance policies with built-in long-term care benefits. As such, they pay out a guaranteed minimum death benefit to the policy's beneficiaries. If the policyholder requires long-term care, they can access a portion of the death benefit to cover those expenses. If they don't require care, beneficiaries receive a higher death benefit amount. Premiums on these policies are guaranteed never to increase, but they tend to be higher than those for traditional long-term care insurance.

It's important to note that your health at the time you apply for long-term care insurance will determine your premiums and eligibility for coverage. The younger and healthier you are when you apply for coverage, the better your chances of approval and the lower your premiums will be.

Read our guide on alternatives to long-term care insurance for additional options.

What does long-term care insurance cover?

Long-term care insurance generally covers services that provide the policyholder assistance with routine activities called ADLs, which include eating, bathing, dressing, using the toilet and moving in and out of bed. For a plan to pay out benefits, the insured must require help with at least two of the activities mentioned above. However, coverage details and benefit triggers may vary by plan.

Long-term care insurance policies may also cover assistance with instrumental activities of daily living (IADLs). These are generally more complex tasks such as grocery shopping, cooking and cleaning, managing finances and administering medication.

Some policies extend coverage to hospice care for individuals suffering from a terminal illness, skilled nursing care at home and even rehabilitation, occupational, speech and physical therapy. Outside of these services, LTC plans generally exclude medical expenses from coverage.

Advantages of long-term care insurance

Buying long-term care insurance can provide you and your family peace of mind in knowing you'll be able to afford care later in life. It can also help protect your wealth and assets from the high costs of care.

Let's go over the advantages of long-term care insurance in more detail.

Coverage for long-term care services

As the name implies, long-term care generally extends over multiple years, exceeding what medical and disability insurance might cover. According to the U.S. Department of Health & Human Services, about 20% of today’s 65-year-olds will require some form of care that lasts for more than five years.

Nevertheless, the cost of extended care can be prohibitive for many. According to Genworth's Cost of Care Survey, the national median cost of a private room in a nursing home is $9,700 per month, while the cost of homemaker services and home health aides are around $5,700 and $6,300 per month respectively.

A long-term care insurance policy, especially one with an inflation protection option, can shield your savings against the rising costs of care and help you pay for the types of services you may require later in life.

Reduces the financial burden of long-term care costs

According to a research brief by Melissa Favreault from the Urban Institute and Judith Dey from the Office of the Assistant Secretary for Planning and Evaluation, about 17% percent of people who require long-term care services will spend at least six figures out of pocket on future care. Long-term insurance can help you and your loved ones shoulder some of that financial burden.

In order to get the most value for your money, consider purchasing long-term care insurance in your mid 50s or early 60s. The younger you are when you buy a policy, the lower your premiums. However, that does mean you'll pay premiums for longer.

Married individuals generally enjoy lower premiums, and your long-term care insurance policy may even be eligible for tax deductions. Your policy's waiting or elimination period will also affect its cost. Choosing a longer elimination period will translate into lower premiums, but you'll have to pay for long-term care services out of pocket during that time once you require care.

Provides relief to family members who act as caregivers

Without long-term care insurance, you could rapidly deplete your life savings, leaving you no option but to depend on family members for assistance. Even if you have health insurance, the support needed to fulfill daily tasks is significant. This can also be quite stressful for family members who act as caregivers.

Long-term care insurance can help cover the costs of getting outside help, such as home health care or nursing home care. Ultimately, it can help reduce the amount of money, time and effort that family members need to put into the care of someone who requires ongoing assistance.

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What to consider before buying long-term care insurance

Choosing the right long-term care insurance plan can be a complex decision that requires a significant financial commitment. It may also determine the quality of care you will receive when you need it most. Here are some of the most important factors to consider when choosing a policy.

Cost of long-term care insurance vs. health care costs

According to the American Association for Long-Term Care Insurance (AALTCI), the typical LTC-insurance policy costs about $1,200 annually for 60-year-old men and $1,960 for women of the same age. However, inflation-protection provisions, age, gender, overall health and marital status can greatly affect your premiums.

You will likely pay long-term care insurance premiums for several years before you end up making a claim. Alternatively, if you purchase a policy to get financial support for existing health issues that require long-term care, your premiums will likely be higher — if you can get coverage at all. In either case, you will pay a relatively large sum for quality long-term care insurance.

That’s why it’s wise to compare the cumulative cost of a policy against the future costs of care, particularly of the cost of the services you'd like to receive. This is a complicated calculation, and there's no way to accurately predict how much you'll actually spend on care or if you'll require care at all. However, by keeping an approximate figure in mind, you'll be better able to judge how much you're prepared to spend on a long-term care policy.

To gauge the cost-effectiveness of long-term care insurance, look into what your prospective policy covers and what it doesn’t. For example, some policies may restrict the type of care you receive to that provided by qualified care professionals. If you'd like the flexibility of being cared for at home by a family member, you might want to look into and budget for a policy with more comprehensive coverage.

Availability of government programs and assistance

Several government programs offer assistance to those who need long-term care. While the Federal Long Term Care Insurance Program (FLTCIP) is for federal employees and their families, Medicaid has a much wider reach. In fact, Medicaid, the federal health insurance program for low-income adults and children, is the primary payer of long-term care services across the nation. However, to qualify for Medicaid, your income and assets must not exceed the thresholds stipulated by the program in your state.

On the other hand, Medicare — the federal insurance program for older folks — does not cover long-term care services in most cases.

Another alternative for those living in California, Connecticut, Indiana or New York are long-term care partnership programs. These programs are a joint initiative by these state’s Medicaid programs and private long-term care insurance companies. If a policyholder purchases a qualifying plan, they can retain one dollar in assets for every dollar in coverage they purchase and still qualify for Medicaid.

If you meet the stipulations and qualify for long-term care assistance through government programs, they are certainly worth looking into and can save you a significant financial burden in the long run.

Existing retirement plans and life insurance policies

Your savings and investments can also help fund your future long-term care costs. If you have a retirement plan like an IRA or a 401(k), you can start withdrawing funds from your plan without tax penalties at age 59½.

Alternatively, permanent life insurance policies give you the option to borrow against the policy or withdraw the accrued cash value. You can also sell the policy to obtain its cash surrender value, which you can use to cover long-term care expenses. Just be aware that surrendering your policy may have tax implications, and the amount you receive may not be enough for what you need.

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Who should buy long-term care insurance?

If you're 65 or older, chances are you'll need some form of care in the near future. Long-term care insurance can help you cover the costs of extended care if you don't qualify for Medicaid but also don't have enough in assets or savings to self-insure. Just keep in mind that your age and health will affect your premiums and your chances of qualifying for a policy.

For example, a standalone long-term care insurance policy with $165,000 in level benefits can cost a 60-year-old man in excellent health around $1,200 per year. A 60-year-old woman in excellent health would pay over $1,900 for the same policy. Opting for a policy with an inflation protection, which increases the benefit amount by a fixed percentage each year, can considerably increase the cost of a long-term care policy — in some cases by twice as much.

On the other hand, average premiums for a hybrid life and long-term care insurance policy can cost even more. Depending on your health, age and coverage amount, you could pay between $950 and $6,700 per year.

If you're in relatively good health and can comfortably afford these premiums, a long-term care insurance policy could be for you.

Who shouldn't buy long-term care insurance?

If you qualify for Medicaid or are able to pay for your long-term care costs through savings, investments or other means, you probably don't need long-term care insurance.

You should also consider what you'll pay in premiums for a policy that can grow with you. Weigh your premium against the estimated future costs of care to determine whether the policy you're looking into is worth the investment. Similarly, read your coverage details carefully to ensure your plan covers the type of care you're interested in receiving.

Is federal long-term care insurance worth it?

The Federal Long-Term Care Insurance Program is available to federal employees, U.S. Postal Service workers, and active and retired members of the uniformed services and their families. It provides insurance coverage that can help policyholders finance long-term care costs when they require assistance with daily tasks or develop a cognitive impairment.

Coverage under the program is comprehensive, available to policyholders even outside the United States, and includes features such as guaranteed renewability and the ability to waive premiums while receiving benefits. While the program charges a fee to ensure policyholders will be able to afford coverage in the event of future premium increases, the cost of the plan may still increase over time.

That said, the FLTCIP stopped enrolling new members in December 2022 to allow the federal government and the insurance company it partners with, John Hancock, to establish sustainable benefits and premiums. The suspension will last until December 2024. During this period, current policyholders can’t apply to increase their benefits.

Overall, federal long-term care insurance can be worthwhile, provided you and your family understand how the plan works and compare it with other options. Shopping around before settling on a plan can help you ensure this is the most comprehensive and cost-effective option available to you.

At what age should you buy long-term care insurance?

The best time to buy long-term care coverage is before you need it. Experts suggests those interested in this type of policy should purchase it in their mid-50s to mid-60s to ensure they qualify and can secure lower premiums.

Qualifying for long-term care insurance gets increasingly difficult as you get older, since older individuals are more likely to file claims. Premiums and associated insurance costs also get progressively higher with age. For this reason, it's best to get long-term care insurance while you're still relatively healthy. Just keep in mind that buying it too early will mean paying premiums for several years before you need to file a claim.

Summary: Is long-term care insurance worth it?

Long-term care costs are high and ever increasing. And while it's impossible to predict when or for how long you might require such care in the future, long-term care insurance can provide you and your loved ones with peace of mind while safeguarding your assets and savings.

If you don't qualify for government programs like Medicaid and don't have enough saved up to cover future care costs, a long-term care insurance policy could be a worthwhile alternative. Just keep in mind that your eligibility decreases with age while your premiums increase, so shopping for coverage earlier, say in your mid-50s, could help you get more affordable coverage.

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