Long-Term Care Insurance: Is It Worth It?
Disability and Healthcare Planning | by Jules Buxbaum | Wednesday, January 29, 2025
If you're approaching retirement or helping an aging loved one, you're likely weighing your options to protect assets from expensive healthcare needs. One avenue worth exploring is **long-term care insurance**, a policy designed to help cover the fees associated with nursing homes, assisted living facilities, and home care.
Figuring out if LTC insurance is worth it depends on factors like your health, financial goals, and comfort with risk. For those interested in a different route, you can examine our comparison of hybrid long-term care insurance policies, which may offer extra flexibility down the line.
What Is Long-Term Care Insurance?
Long-term care insurance provides financial support when chronic illness, limited mobility, or cognitive impairment makes it difficult to perform daily tasks. It goes beyond regular health insurance or Medicare, covering services like bathing assistance, medication supervision, and specialized nursing support.
Most policies pay out once you’re unable to handle two or more activities of daily living (ADLs), which include bathing, dressing, and moving from bed to chair. According to a 2023 industry survey, about 70% of Americans turning 65 will need some form of long-term care in their lifetime (1). This highlights how essential it can be to plan for the possibility of extended support.
Key Costs and Coverage Features
LTC insurance often covers nursing home care, assisted living facilities, adult day programs, and in-home care. Yet the actual costs vary by location and the policy’s specifics. For instance, a private nursing home room can exceed $120,000 annually in high-cost regions (2).
Policies typically have:
- Daily or Monthly Benefit: The maximum amount paid for each day or month of care.
- Benefit Period: Coverage length, often between two years and lifetime.
- Elimination Period: A waiting period (commonly 30–90 days) before benefits begin.
- Inflation Protection: An optional feature that raises benefit amounts over time.
All these factors shape the insurance premiums you’ll pay. A study by the American Association for Long-Term Care Insurance reported that a couple both aged 60 with select health may pay $5,800 annually for a policy providing $165,000 in initial benefits growing at 3% per year (1).
When Should You Buy a Policy?
Many people begin looking at long-term care insurance in their 50s or early 60s. Buying younger often means lower rates—though you’ll pay premiums for a longer period. Waiting too long can lead to higher costs or medical disqualification.
If you’re in your early 50s and in good health, you might secure a favorable rate. However, some prefer to wait until their late 50s or early 60s when the likelihood of needing care in the near term is somewhat higher. The “best” age varies based on your health, budget, and willingness to manage premiums over time.
Common Misconceptions About LTC Insurance
A frequent misconception is that Medicare will handle any prolonged care needs. Medicare may pay for short-term rehabilitation in a skilled nursing facility, but it doesn’t cover ongoing custodial care. Another myth is that LTC policies only benefit seniors; in reality, accidents or sudden illnesses can happen at any age.
Some also mix up disability insurance and LTC coverage. Disability insurance replaces a portion of your lost income if you can’t work, while LTC insurance specifically funds services for personal care. For a deeper look at this distinction, check out Short-Term vs. Long-Term Disability: What’s Covered? to see how each plan differs in purpose.
Alternatives to Consider
While LTC insurance remains a primary choice for many, it’s not the only option. Some people prefer to self-fund their potential care costs by saving aggressively. Others look into hybrid life insurance policies that include a long-term care rider, allowing a portion of the death benefit to be used for care.
If you have limited income and assets, Medicaid may be a fallback. However, the rules around spend down and eligibility can be complex. In certain states, you might be required to deplete most assets before you qualify. For more insights, read our breakdown of how NY, NC & FL handle Medicaid in retirement, which can help clarify state-by-state differences.
Incorporating LTC into Your Broader Retirement Strategy
Protecting yourself from expensive care costs can be a crucial part of retirement planning. Paying LTC insurance premiums might allow you to invest your remaining assets more aggressively—potentially increasing returns over time. If you never need extended care, you still benefit from peace of mind along the way.
To decide if LTC coverage is a fit, consider variables like your family health history, portfolio size, and tolerance for market risk. Our team at 2Pi Financial believes that many Americans could aim for slightly higher-return strategies, which may help minimize the chance of running short on funds for long-term care. One approach is to model different scenarios inside an advanced retirement planning tool.
A good example is the 2Pi Financial Planner, where you can input investment details, potential nursing home costs, and personal preferences. By adjusting factors like retirement age and risk level, you’ll see how these variables affect future financial security. This can help you figure out whether insurance or a self-funding approach makes more sense for your needs.
Is LTC Insurance Really Worth It?
It can be worthwhile if:
- You have assets to protect: High net-worth individuals often use LTC insurance to safeguard their portfolio from steep care costs.
- You want to set limits on out-of-pocket spending: A policy can cap what you pay, letting an insurer absorb most of the burden.
- Family health history is concerning: If there’s a higher genetic likelihood of conditions like dementia, LTC coverage may become more relevant.
Still, premiums can spike unexpectedly. Between 2000 and 2014, many insurers raised rates by 50% or more (3). So, affordability over the long haul should always be part of your decision.
Bottom Line
Long-term care insurance offers essential financial protection if you eventually need nursing home services, home health care, or assisted living. It’s not the only solution, but it’s a valuable option for many individuals planning for older age.
As you weigh the pros and cons, keep an eye on your budget and potential rate increases. For more guidance, review the common mistakes to avoid when planning for retirement so you can stay on track toward a stable future. Making an informed choice now may spare you or your loved ones from stressful decisions down the line.
References
1. American Association for Long-Term Care Insurance (AALTCI). (2023). “Long-Term Care Insurance Facts.” Available at: https://www.aaltci.org
2. Annuity.org. (2025). “Health Care Costs in Retirement.” Available at: https://www.annuity.org/retirement/health-care-costs/long-term-care
3. California Department of Insurance. (2019). “Long-Term Care Insurance Rate Adjustments.” Available at: https://www.insurance.ca.gov
