8 Alternatives to Long-term Care Insurance

Thang Truong
Thang Truong
Updated on:

You probably already know that the bottom has dropped out of the long-term care insurance market, with many companies leaving the market altogether. But you’re probably still worried about what will happen if you or your spouse should need long-term care. It’s expensive and paying for it out-of-pocket can easily deplete your entire nest egg. What’s a financially savvy person to do?

Here we present some alternatives to long-term care insurance.

Hybrid Long-Term Care and Life Insurance Policy

As more and more carriers are exiting the (traditional) long-term care insurance market, the more companies are offering a new product, called hybrid long-term care insurance. The new product has become more and more popular among the consumers in the past years.

>>MORE: The 5 Best Traditional Long-Term Care Insurance Companies

Sometimes these are called Asset-based policies because they usually require a large lump sum payment up front, although now some companies allow you to pay for up to ten years. The way hybrid long-term care insurance works is that you purchase a life insurance policy, say for $100,000. There’s a pool of money available for you to withdraw from should you need long-term care, say $400,000. If you need long-term care, you’ll have it covered and if you don’t, there will be a death benefit paid to your heirs which is probably slightly more than what you paid for the policy (say $120,000). If you need long-term care, these are an excellent value. On the other hand, not everyone has $100,000 available to pay for insurance. 

>>MORE: The 5 Best Hybrid Long-Term Care Insurance Companies

Permanent Life Insurance with a Long-Term Care Rider

You can purchase any type of permanent life insurance policy and add a long-term care rider. These must be purchased at the time you buy the insurance, though—you can’t just add a rider on later. This rider will allow you to access the death benefit to pay for long-term care while you’re still alive. 

Long-term care riders generally come at a cost, while accelerated death benefit riders such as chronic illness rider are frequently added in for free. What’s the difference? You need to be diagnosed with a chronic illness that you are not predicted to recover from, or a permanent condition, to access accelerated benefits. Long-term care riders can be accessed for a chronic condition you are not likely to recover from that prevents you from taking care of yourself, such as dementia or Alzheimer’s. Learn more about the differences between long-term care rider and chronic illness rider.

One advantage of this strategy is that if you don’t need any long-term care, your beneficiaries still receive the death benefit from the life insurance. 

Not all life insurance companies offer long-term care rider on their permanent life insurance policies. The most popular ones are John Hancock, Nationwide, Transamerica, and AXA Equitable.

>>MORE: How does Life Insurance with a Long-Term Care Rider Work?

Permanent Life Insurance with Chronic Illness Rider

Similar to long-term care rider, chronic illness rider can cover long-term care expenses, although its coverage is triggered only when you are diagnosed with a chronic disease, which means that you are not predicted to recover from. On the other word, you suffer from a permanent condition. Learn more about the differences between a long-term care rider and a chronic illness rider.

Chronic illness rider may be available free or with a charge in the permanent life insurance policies. You have to decide to include it at the point of purchase. You can’t add it after the purchase. Here are some popular companies offering chronic illness rider free: American National, United of Omaha, North American, Symetra, Lincoln Financial.

Paid chronic illness rider provides more comprehensive coverage and it may be worth an additional small cost. More companies offer chronic illness rider with an additional fee such as Lincoln Financial, Symetra, Protective, AIG, Prudential, Minnesota Life or Securian Financial, Brighthouse (formerly MetLife), Cincinnati Life, and Principal.

Medicaid/Medicare to Pay for Long-Term Care

Medicare will cover skilled nursing home care, if you are sent to a facility after at least a three day hospital stay. Medicare will cover the entire cost for up to 20 days, then for the next 100 days they’ll cover most of the cost. Many nursing homes will not accept Medicare patients, though. 

Medicaid is how most people pay for long-term care, but to qualify, you have to have less than $2,000 in assets and have a low income. If you have more money than that, you’ll probably be spending most of it on long-term care, and then when you’re almost bankrupt, you can rely on Medicaid. You can’t transfer your money to your children or other family members, either—if Medicaid finds you’ve transferred money in the last five years, you’ll suffer penalties and delay being able to qualify. 

Annuities to Pay for Long-Term Care

An annuity is a stream of income you purchase from the insurance company, which you can then apply to long-term care. You’ll have to pay for the annuity in a lump sum, or at least a short amount of time, and you must be 80 years old or younger to qualify. The good news is that there is no medical exam and the underwriting is less stringent than for life insurance, so if you already have some health problems, an annuity might work. They might not cover the entire cost of long-term care, depending on how long you need care, but they’ll definitely help. 

Health Savings Account (HSA) to Pay for Long-Term Care

You can deposit pre-tax money in a special account to pay for medical expenses. You’ll also earn tax-free interest on the account. You’ll need to be enrolled in a high-deductible health plan to qualify—check with your health insurance company. 

Reverse Mortgage to Pay for Long-Term Care

If you have paid off your mortgage, you can take out a reverse mortgage to pay for your long-term care. However, this is a complicated strategy and it is only available as an option for those who are at least 62 years old. If you want to pursue this strategy, make sure to discuss the details with an investment and/or retirement advisor.

Pay for Long-Term Insurance Yourself

If you’re well off, paying for your own medical expenses out of pocket might work. Invest the money you would’ve spent on life insurance premiums in other investments and hope for the best. 

Last Thoughts

Now that companies are fleeing the long-term care insurance market as fast as they can, you’ll have to consider other ways to pay for long-term care. Make sure you have a plan, though, because the odds are that you will need some type of long-term care in the future.

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

More Stories

6 Best Indexed Universal Life Insurance (IUL) for 2023

Are you looking for a way to set aside some extra money for your senior years, and maybe a little extra for loved ones to inherit? Most people opt for indexed universal life insurance because it offers the greatest cash value growth tied to the performance of S&P 500 index with the least risk thanks […]

Best Self-Directed Roth IRA Companies for 2023

A self-directed Roth IRA is much like a regular Roth IRA, but offers more flexibility as far as what you can invest in. Whereas a regular Roth will only let you invest in stocks, bonds, mutual funds, ETFs, and real-estate investment trusts, a self-directed Roth lets you invest in a greater variety of investment options.  […]

The 5 Best Hybrid Long-Term Care Insurance Companies for 2023

If you’ve decided to plan for every eventuality, you’d be smart to include a plan to cover long-term care. Someone turning 65 this year has an almost 70% chance of needing some type of long-term care, and about 13% of those will need it for five years or more. Long-term care is expensive and can […]

The 3 Best Traditional Long-Term Care Insurance Companies for 2023

Long term care is something that no one likes to think about, but unfortunately, many people will eventually need. Health care costs are skyrocketing, and a lengthy stay at a long-term care facility can easily bankrupt most people’s nest eggs. Long-term care insurance is one way to protect both yourself and your retirement savings. Out […]

The Best Long-Term Care Insurance Companies in California for 2023

California residents who are keen to protect themselves and their families against the worst events in life may be considering long-term care insurance. However, you might not know much about LTC insurance or how it is handled in California. Let’s take a look: What is Long-Term Care Insurance? Long-term care insurance helps pay for long-term […]

The Best Long-Term Care Insurance Companies in Arizona for 2023

Arizona is a great place to retire. It’s warm, there’s no snow to shovel, and Arizona improves the quality of life for anyone with allergies or asthma. When you pack your bags and retire to Arizona, you’re probably not thinking about long-term care. But the sad reality is that 47% of men and 58% of […]

The Best Long-Term Care Insurance Companies in Florida for 2023

There’s a lot of good reasons to retire in Florida. The weather is warm, the beaches are beautiful, and there are lots of other retirees to socialize with. Also, Florida has no state income taxes, no inheritance taxes, and no estate taxes. When you pack up your things and move to Florida, you’re probably not […]

Private Placement Life Insurance: Everything You Need to Know

If you haven’t heard of private placement life insurance, you probably don’t qualify to buy it. Private placement life insurance is typically for investors with millions in liquid cash that they need to invest for tax reasons.  What is Private Placement Life Insurance? Who Qualifies for Private Placement Life Insurance? Benefits of Private Placement Life […]

Nationwide IUL – A Strong Product With Great Features and Excellent Ratings

The Nationwide IUL product can help you either supplement your retirement income or ensure your beneficiaries future by leaving them a nice tax-free death benefit. Obviously, you have many options when it comes to IUL policies, so you want to know how does Nationwide’s policy stack up against the competition? Let’s take a look. Pros […]

Transamerica IUL – A Solid Product but High Consumer Complaint Score & Law Suits

Consumers looking to supplement their retirement income often settle on an indexed life insurance policy. These policies build cash value based on market performance and allow your heirs to enjoy a tax-free death benefit. Let’s take a look at Transamerica’s indexed universal life insurance policy and see what makes it stand apart from other such […]