Long-term care insurance

Long-term care means help with the ordinary tasks of daily life: bathing, dressing, getting out of a chair, remembering medications. It is the kind of help most people eventually need, and the kind that health insurance mostly does not pay for. Medicare covers only short, recovery-focused stays after a hospital admission, and Medicaid pays for care only after you have spent down most of your savings. Long-term care insurance exists to fill the gap between those two programs.

It is also one of the most troubled products in personal finance. Policies sold in the 1990s and early 2000s were badly underpriced, premiums on many of them have risen steeply, and most of the insurers that once sold coverage have left the market. What remains is a smaller, more carefully priced business, with much of the new activity in hybrid policies that combine life insurance with care benefits.

Whether coverage makes sense for you depends on the odds of needing care, the price of care where you live, the premium you would pay, and your health, because insurers decline a large share of older applicants.

The odds of needing care#

Federal researchers estimate that 56 percent of Americans turning 65 between 2021 and 2025 will develop long-term care needs serious enough to require help, and about 22 percent will need that help for five years or more ¹. For women the lifetime figure is 61 percent ¹. An earlier version of the same federal modeling, which used a broader definition of need, put the lifetime risk at 70 percent ². A fair summary is that somewhere between half and seven in ten people reaching 65 will need long-term care at some point, depending on how need is counted.

The same research carries two tempering facts. First, needing care is not the same as paying for it: about 48 percent of people reaching 65 will ever use paid care, since families provide much of the rest ². Second, most care spells are short. Roughly one in four people will receive more than two years of paid care, and about 15 percent will spend more than two years in a nursing home ².

That pattern shapes the whole insurance question. Long-term care is not a certainty to insure against but a tail risk: many people will need little or nothing, while an unlucky minority faces years of bills at the prices below.

Sources for this section: [1] [2]

What care costs#

The CareScout Cost of Care Survey, run by Genworth since 2004, tracks median prices nationwide. The 2025 figures ³:

Prices vary widely by region, and they have been rising faster than general inflation in most categories ³. Most care actually happens at home, which is why policies today cover home care on equal terms; aging in place with 44 hours of paid help a week now costs more per year than a room in many assisted living communities ³.

Sources for this section: [3]

What a traditional policy covers#

A traditional, tax-qualified policy pays benefits when a doctor or nurse certifies that you need substantial help with at least two of six activities of daily living (bathing, dressing, eating, toileting, continence, and transferring in and out of a bed or chair) or that you have a severe cognitive impairment such as dementia. Benefits can be used for home care, adult day programs, assisted living, memory care, or a nursing home.

Four numbers define the coverage:

• The daily or monthly benefit, such as $200 a day or $6,000 a month.
• The benefit period, commonly two to five years, which together with the benefit amount creates a total pool of money. A $6,000 monthly benefit for three years is a $216,000 pool; the pool lasts longer if you spend less than the maximum.
• The elimination period, a waiting period (90 days is a common choice) during which you pay for care yourself before benefits begin.
• The inflation rider, which grows the benefit, often 3 percent compounded each year. For buyers in their 50s, the rider matters more than the starting benefit, since a claim may be 25 or 30 years away.

Most policies reimburse actual expenses up to the benefit cap. Couples can often add a shared-care rider that lets one spouse draw on the other's unused pool.

What new coverage costs#

The American Association for Long-Term Care Insurance publishes an annual price index. Its 2025 examples, for applicants in good health buying a policy with a $165,000 initial benefit pool, show how age, gender, and inflation protection drive the premium ⁴:

Women pay more because they live longer and account for most claim dollars. Actual quotes vary by state, insurer, and health class, and the differences between companies for identical coverage can be large, which is one argument for comparing several carriers ⁴.

Sources for this section: [4]

Why premiums on old policies rose so sharply#

Long-term care insurance was a young product in the 1980s and 1990s, and insurers priced it with assumptions that turned out to be wrong in the same direction. They expected around 5 percent of policyholders to drop coverage each year, as happens with life insurance; in reality about 1 percent did, so far more people kept their policies long enough to claim ⁶. They assumed reserves would keep earning the high interest rates of that era, and rates instead fell for two decades ⁶. Claims, especially long dementia claims, also ran past projections.

Because premiums on these policies are not guaranteed, insurers asked state regulators for increases, and regulators largely granted them rather than risk insolvencies. Many longtime policyholders have absorbed repeated rounds of increases, and most companies stopped writing new policies altogether ⁶. Policies priced today use far more conservative assumptions, which makes them more expensive at purchase but less likely to see the same treatment.

Note: If you receive a rate increase letter on an older policy, dropping it is rarely the only choice. Insurers must usually offer alternatives, such as trimming the inflation rider, shortening the benefit period, or a paid-up policy equal to the premiums you have paid. An old policy kept at reduced benefits is often still better priced than anything you could buy new.

Sources for this section: [6]

The underwriting reality#

Traditional policies are medically underwritten, and the odds of being turned down climb with age. In industry data reported by the AALTCI, 38.2 percent of applicants ages 65 to 69 were declined, and 47 percent of applicants ages 70 to 75 were declined or deferred ⁵. Common reasons include needing help with daily activities already, memory problems, a recent stroke or cancer, oxygen use, and certain medication combinations.

This is why the practical shopping window is the mid-50s to mid-60s: young enough to qualify and to lock in lower age-based pricing, old enough that the need is visible in your planning. Hybrid policies and some group plans use lighter underwriting, which is part of their appeal to people with health issues.

Sources for this section: [5]

Hybrid life and long-term care policies#

A hybrid (or linked-benefit) policy is life insurance, or sometimes an annuity, with a long-term care rider. If you need care, the policy pays out the death benefit early, often two or three times over with an extension rider. If you never need care, your heirs receive the death benefit, which answers the objection many buyers have to traditional coverage: paying decades of premiums for something they may never use.

Hybrids come with real tradeoffs. Premiums are typically guaranteed never to rise, and many are funded with a single payment or over ten years, which suits people moving a chunk of savings. But you get less long-term care coverage per premium dollar than a traditional policy provides, inflation protection usually costs extra, and the lump sum gives up other investment uses. Since the traditional market shrank, hybrids have become the main way Americans buy long-term care protection, so most shoppers today end up comparing a traditional quote against a hybrid one rather than choosing among many traditional carriers.

Taxes, partnership programs, and state payroll programs#

Premiums for tax-qualified policies count as medical expenses up to age-based limits the IRS adjusts each year. The 2026 limits ⁷:

The deduction helps only if you itemize and your medical expenses exceed 7.5 percent of adjusted gross income, though self-employed people can deduct within the limits without itemizing, and health savings account money can pay qualified premiums up to the limits tax-free. Benefits paid by a qualified policy are generally not taxable income. Several states add their own credits or deductions; taxes in retirement covers how these pieces interact.

Most states also run partnership programs, a deal between insurers and Medicaid: buy a partnership-qualified policy, and every dollar it pays in benefits lets you keep a dollar of assets above the normal limit if you later apply for Medicaid. A $300,000 policy that pays out fully protects $300,000 from the spend-down and from estate recovery.

Washington State went further and built a public program. Under WA Cares, workers pay a premium of 0.58 percent of wages, and eligible residents (most qualify after contributing for ten years) can draw a lifetime benefit of up to $36,500, adjusted for inflation, for home care, family caregiver pay, equipment, or facility care. Benefits became available in July 2026, the first state program of its kind, and several other states have studied similar designs ⁸.

Sources for this section: [7] [8]

Alternatives to buying a policy#

Self-funding is the default, and for households with substantial assets it can be a reasoned choice rather than neglect: earmarking investments, home equity (possibly through a reverse mortgage later), or a deferred annuity to cover a care shock. The risk being retained is the tail: several years of care at $75,000 to $130,000 a year in today's prices ³.

Medicaid is the country's largest payer of long-term care, but qualifying requires spending down assets under rules that include a five-year look-back on transfers, and it mainly covers nursing homes plus waivered home care with waiting lists in many states. Relying on it is less a strategy than a fallback, though elder law attorneys do structure assets around it.

The most common plan, chosen by default, is unpaid help from spouses and adult children. Family caregiving carries its own costs in lost wages and health, which is worth weighing honestly when deciding whether to insure. Some people instead prepay future care through housing, by moving to a continuing care retirement community with a lifecare contract, which bundles a care promise into an entrance fee and monthly charges.

Sources for this section: [3]

RetiredWiki. (2026, July 6). Long-term care insurance. https://retiredwiki.com/article/long-term-care-insurance