Understanding long term care insurance
Access to medical care is a concern for many Americans, even those with Medicare: a third of Medicare beneficiaries say it is hard to afford healthcare costs.1 This concern is heightened for those who need long-term care services — for example, at a nursing facility — because the cost can quickly drain one's life savings. Someone turning 65 today has almost a 70% chance of needing some long-term care services and support in their remaining years.2 Long term care insurance can provide meaningful financial protection, potentially preventing policy holders from losing their savings to pay for care. In this article, you'll learn about:
What long term care insurance is, and how it works
The difference between hybrid and traditional long term care insurance
Who can benefit from long term care insurance
The advantages and disadvantages of long term care insurance policies
Alternatives to long term care insurance policies to consider
What is long term care insurance?
Long term care insurance helps cover the cost of long-term care that may be needed if you develop a disability or chronic medical condition. It can help cover or reimburse you for costs such as:
Residency in an assisted living facility.
Adult day care center programs.
Residency in a nursing home, including a memory care center.
In-home care, potentially including a home help nurse.
How long term care insurance works
Long term care insurance is sold through private insurance providers. During the application process, the insurance provider will review your medical records and learn about your lifestyle.
If approved, your policy will typically have a specific cap for the number of benefits paid per day and during your lifetime. Many policies also offer an inflation protection feature that increases those caps over time. The higher the daily and lifetime cap, the more expensive the policy. You’ll begin paying premiums once the policy is issued and continue until you qualify for benefits, or decide to terminate the policy.
When do benefits start?
While the details will vary depending on the specific policy you choose, most long term care policies will consider you eligible for benefits when you can’t complete at least two of six “activities of daily living” (ADLs) on your own. Alternatively, benefits may be received if you’re experiencing significant cognitive impairment from dementia, Alzheimer’s disease, or other conditions. ADLs include:
Bathing
Dressing
Eating
Toileting (Getting on or off the toilet)
Continence
Transferring (moving in or out of a bed or chair)
Choose between traditional vs hybrid long term care policies
There are two main types of long term care insurance: traditional and hybrid. While they can both be used to help pay for long term care, they each work somewhat differently.
Traditional long term care insurance (described above) is a “use it or lose it” policy, meaning that at some point, you either need long-term care (and get benefits) or you don’t (and get nothing). Some people may not want to invest in the policy premiums because they worry about losing all the premium money if they never end up needing long-term care.
Hybrid long term care insurance policies can offer more holistic financial protection, and help to lessen the concern over potentially wasted premiums, because they combine long term care insurance with permanent life insurance, like whole life insurance or universal life insurance.
Permanent life insurance policies provide a death benefit but also build cash value over time.3 These hybrid policies allow you to withdraw funds from the policy when needed for long term care. If the policy holder dies without requiring any long-term care, the life insurance beneficiaries still receive a death benefit. This prevents policy premiums from being “wasted,” because one way or another there will be a payout. However, it's important to remember that if long term care benefits are used, the death benefit may not be available to beneficiaries later on. So, you may choose to get other life insurance coverage as well.
What does long term care insurance cost
Long term care insurance policies can vary significantly in cost, depending on a number of factors. These include:
Age As with life insurance, people who apply at a younger age generally get lower monthly premiums.4
Gender Long term care providers have moved away from unisex pricing, and now women may pay higher premiums on average than men.5
Health and lifestyle Healthy applicants with no significant health concerns will typically receive a lower premium than higher-risk individuals. Lifestyle is also accounted for, with risky professions or behaviors like smoking potentially impacting your premium.
Coverage amount Policy premiums are higher as benefit levels increase.
Some people may qualify for long term care or long term insurance through certain government sponsored programs. Veterans6, for example, may qualify for long term care assistance through the VA, while those with little or no assets may be eligible for assistance through Medicaid.7
Pros and cons of long term care insurance
The advantages
The most significant advantage of long term care insurance is that it can provide significant financial protection for the savings and assets your family has worked hard to build.
Long-term care can be difficult for families to afford. The annual median cost of long-term care services in 2024 include:8
$75,504 for homemaker services
$77,792 for a home health aid
$26,000 for adult day health care
$70,800 for assisted living facilities
$111,325 for a semi-private room in a nursing home
$127,750 for a private room in a nursing home
These types of expenses can quickly deplete a person’s savings. Long-term care insurance policy benefits can help – up to the daily and lifetime maximum limits – by covering costs you would have otherwise had to pay for needed care.
Hybrid policies offer the additional benefit of ensuring that you receive a payout from your policy in one way or another. If you don’t end up needing long term care, your beneficiaries can receive a death benefit from the policy.
The disadvantages
As with any type of financial product or service, there are also disadvantages to consider, starting with cost: Policy premiums for long-term care insurance tend to be expensive, and those on a tight budget may not have the means to purchase this coverage.
Risk of unused benefits. Traditional long-term care insurance policies may ultimately pay no benefits if you never need long term care; hybrid policies lessen this problem by offering a death benefit.
Becoming over-insured. Depending on your personal circumstances, including other individual policies you may already have, adding an additional policy may cause you to be over-insured.
Eligibility concerns. If you have certain preexisting conditions, you may not be eligible to apply for long term care insurance.
Benefits don’t start immediately. Policies typically include a waiting or elimination period during which you have to pay for care until benefits begin. So, even with coverage, you may still have significant out-of-pocket costs during this time.
Who should consider buying long term care insurance?
The reality is that anyone who does not have an existing condition that would disqualify them from coverage should at least consider long term care insurance. Because there’s a very good chance you’ll eventually need it: According to LongTermCare.gov, just 1 in 3 of today's 65-year-olds may never need long-term care support — but 20% will need it for longer than five years.9 Long term care insurance can help protect your family’s finances, but that protection comes at a cost. When determining if it’s right for you, consider the following:
Can I afford the monthly premiums? You’ll only receive a benefit payout if you keep your policy active and in good standing. If you can’t afford to keep paying premiums — or if it introduces significant financial hardship — long term care insurance may not be right for you at this time.
What can I afford without long term care insurance? Based on your savings and retirement income from pensions or Social Security, calculate what you can realistically afford to pay out-of-pocket without long term care insurance. If, for example, you can comfortably afford a home health aide for ten years, you may not need coverage.
Which policies would benefit me most? Some people prefer holistic protection available through hybrid long term care policies, along with the greater certainty of receiving some benefit. Others may find traditional long term care policies to be more cost-effective, or preferable because they already have other life insurance.
If you're unsure, getting a quote from an insurance provider or financial professional is the best place to start. They can let you know what you're likely eligible for, discuss different policy options, and give you an estimate for monthly or annual premium costs.
How to buy long term care insurance
You can purchase long term care insurance by following these steps:
Consider what type of policy you’re most interested in.
Contact a financial professional or insurance provider for quotes.
Complete the application process, which may include a medical history review, tests like blood work, and an in-depth interview to assess potential risks.
Select your policy type and coverage, including payout limits and types of benefits included.
Sign your policy paperwork and pay your first premium.
Note that once your policy is in effect there is typically a waiting period, often between 30-90 days, before you are eligible to receive benefits after making a claim.
Considering a hybrid policy?
Learn more about Guardian SafeGuard 360, holistic insurance that includes whole life insurance, long term care protection, and disability income benefits.10
Alternatives to long term care insurance
Long term care insurance may not be the best solution for everyone. There are alternatives to consider, including the following:
Short-term care insurance. This insurance can pay benefits for similar types of qualifying conditions and care, but for a shorter period, typically a few months to a year.11 It costs less than long-term care insurance but doesn’t provide long-term financial protection.
Critical care or illness insurance policies can provide lump sum payouts for qualifying medical conditions like cancer, heart attacks, and stroke. However, they do not provide ongoing benefit payments.
Whole life insurance policies. Whole life insurance policies accumulate cash value over time, which you can draw from as needed, for example through policy loans.12 Cash value loans can be a good way to help pay for long-term care costs, but if not repaid, the death benefit will decrease.
Annuities with long term care riders. Some providers allow you to take out annuities with long term care riders, which may come with tax advantages. While they need to be purchased up front, you may be able to use the funds in an annuity to help pay for long term care tax-free.13