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Costs and benefits of long-term care insurance

It can be uncomfortable to think about potential long-term and extended health care costs during your retirement years, but planning early can help you save accurately and protect your assets.

Tags: Healthcare, Insurance, Planning, Be prepared
Published: August 13, 2019

Long-term care typically becomes necessary when people require help with their medical or personal needs over an extended period of time. “We know from government statistics that more than half of people turning 65 now are at some point going to need long-term care,” says Pat Edwards, a regional insurance strategist with U.S. Bank Private Wealth Management. “This is an issue that touches almost every household.”


Monthly graph for long-term care

How can long-term care insurance help?

For most, covering costs like this out of pocket can be a serious financial strain. Traditional employer-based health insurance won’t cover extended daily care, and health insurance, generally, may only pay for doctor and hospital bills.


Medicare places strict limits on what it will pay for. It only covers a short stint of nursing home care2 and when certain requirements are met, skilled care given by a registered nurse or doctor for periods up to 100 days. If you need care for an extended period of time, you may be required to spend down your assets before Medicaid will cover costs. What’s more, you’ll be left with less choice about the care you receive.


Long-term care insurance (LTCI) can make a real difference in protecting your retirement savings from the costs of unexpected medical expenses later in life. This may lessen the amount of financial uncertainty in your planning. “It allows you to be more flexible with the rest of your money knowing you aren’t going to have to tap it for long-term care needs,” Edwards says.


Given that many people prefer to remain in their home, LTCI plans may provide the financial flexibility to extend the period of home care, covering home modification and care coordination. This can also spare your loved ones the pressure of committing the time needed to be your caregiver or covering your care costs if you cannot.


For families who can self-insure long-term care, newer LTCI policies can be far more tax and cost efficient than liquidating assets. Additionally, the policies can help preserve your wealth, allowing you to leave more assets to loved ones or for philanthropy.


What are long-term care insurance costs?

A typical LTCI policy will pay a predetermined amount for each service — for instance, $100 a day for nursing home care. There generally will be a limit to the benefits you receive, either based on a number of years or a dollar amount. A plan that offers pooled benefits — meaning it covers more than one type of long-term care service — will set a total dollar amount for the various services you receive.


It’s better to purchase a LTCI policy when you are still in good health, generally in your 50s, than to wait until you are ill or older when it may become unaffordable. “The younger you are, the lower the premiums,” says Edwards.


Pricing, premiums & claims chart


When to consider long-term care insurance

If you find other options to be less affordable, traditional LTCI could be a better option than no insurance at all because you have more time to pay premiums.2 “It’s absolutely the right thing to do for people who can afford it and can’t afford to self-insure,” says Edwards.


However, new types of LTCI policies are gaining in popularity, extending beyond the traditional “use it or lose it” type, many of which have experienced premium increases.


One alternative is hybrid life and long-term care insurance. This type of policy combines long-term care insurance with permanent life insurance and provides more options2:

  • If you need long-term care, you can tap the policy benefit.
  • If you die before needing long-term care, the policy has a life insurance benefit that is typically equal to or larger than the premiums paid.
  • If you decided you need the money for something else, you can typically receive a cash value that can be roughly equal to or less than the total premiums paid.
  • Contract terms and premiums are guaranteed not to change.

Another alternative is a universal life insurance policy with a LTCI rider. This option is appealing if you’re interested in a meaningful death benefit for beneficiaries in the event LTCI isn’t needed.


Consider working with a financial professional to understand how traditional or alternative LTCI policies might fit into your current retirement strategy, how much coverage you might need based on the amount you can shoulder, and how to choose a reputable provider.


Learn more about your insurance options.



1 Skilled nursing facility (SNF) care.” Medicare.gov.
When Hybrid Long-Term Care Insurance Makes Sense.” NerdWallet. 2016.
3 LTC (Long Term Care) Insurance: Risks and Benefits.” FindLaw. 2018.