The Pros and Cons of Long-Term Care Insurance

Thang Truong
Thang Truong
Updated on:

As you plan for your retirement and beyond, you’re probably not anticipating you or your spouse going into a nursing home. But sadly, someone turning 65 today has almost a 70% chance of needing some kind of long-term care in the future. Long-term care is extremely expensive, depending on the type of care. For example, a stay in a nursing home will cost you about $150,000 a year in Connecticut; $54,800 in Texas; or $85,800 on average in America. And some people who need long-term care need it for more than five years. Few retirees have that much extra cash on hand. How will you pay for that, should the need arise? Long-term care insurance is one way you can plan for that possibility. 

Pros and Cons of Long-Term Care Insurance

– You’ll have more say in where and what kind of long-term care you get
– You’ll protect your assets
– Tax benefits 
– Peace of mind
– You’re likely to require some kind of long-term care when you are 65 or older
– Cheaper than hybrid long-term care insurance for similar long-term care benefits
– Long-term care insurance is still expensive in general
– Should you not need long-term care, you’ll lose everything you paid in premiums
– Premiums can increase over time
– Guessing how much long-term insurance you might need requires fortune telling

What is Long-Term Care?

We should probably start by defining what long-term care is. People who need assistance with activities of daily living (ADL’s), such as:

  • Bathing
  • Dressing
  • Toileting
  • Eating
  • Getting around
  • Grooming

Custodial care refers to a health care professional visiting the client at home and providing help with these activities of daily living. 

Skilled care is provided by nursing homes, rehab facilities and the like. Either way, both are expenses that few people plan for, which brings us to long-term care insurance. 

>>MORE: A Comprehensive Guide to Long-Term Care Solutions: From Insurance to Medicare/Medicaid

>>MORE: Life Insurance With Long Term Care Benefits

What is Long-Term Care Insurance?

Did you know that regular health insurance will not cover long-term care? Many people don’t realize that until it’s too late. Medicare will not cover long-term care either. Medicare believes most long-term care is custodial (helping with ADL’s) and to them, that is not health-care related. 

Disability insurance doesn’t cover long-term care, either. Long-term care insurance will cover costs such as:

  • Nursing home stays
  • Assisted living
  • In-home care
  • Adult day care services

Long-term care policies can vary, but usually they go into effect when you can no longer perform two out of the six ADL tasks. 

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

How Much is Long-Term Care Insurance?

Like all insurance policies, premiums vary by how old you are when you purchase the insurance and what the policy covers. If you buy a policy when you are 50, the average is $1,294 dollars a year for a per-person daily benefit of $161 and a limit of four years of benefits, assuming no adjustments for inflation. If you get a policy for both you and your spouse, the premiums increase by about 30% for the second person. 

You should buy long-term care insurance while you’re still relatively young and healthy. If you wait until you need it, you won’t qualify. Most people start thinking about long-term care insurance when they’re in their fifties. 

If you have personal savings you want to protect, can afford the premiums, and want choices as to who provides your long-term care, long-term care insurance may be for you. When you buy a policy, make sure Alzheimer’s disease is covered, as this is a major reason for needing long-term care. 

On the plus side, long-term care insurance can be tax-deductible. Learn more about the tax benefits of long-term care insurance.

Also, keep in mind that many long-term care policies have what they call an elimination period. This is basically a waiting period, where you’ll have to pay for your long-term care costs out-of-pocket before the insurance kicks in. It can be 20, 30, 60 or even 90 or 100 days, depending on your policy. 

>>MORE: How Much does Long-Term Care Insurance Cost?

What Happens If I Buy Long-Term Care Insurance and Don’t Need Long-Term Care?

That’s a huge disadvantage of long-term care insurance. If you do buy a policy and then wind up never needing long-term care, then all the premiums you paid just go to the insurance company. You don’t get anything back. You could argue that you also pay lots of money for car insurance companies and you don’t use it if you never get into an accident, but then again, it’s illegal to drive without car insurance. 

There is such a thing a hybrid long-term care insurance that was developed because of this. Several insurance companies have started offering this product and it has become more and more popular. Here is our analysis on the best hybrid long-term care insurance companies for your consideration.

It’s a combination of long-term care insurance and life insurance with a rider attached. Learn more about hybrid long-term care insurance here.

Are There Alternatives to Long-Term Care Insurance?

Of course. Here are a few of them:

Group long-term care insurance: Some companies will offer this as a benefit. It’s cheaper than paying for it yourself

Paying for long-term care yourself: If you’re wealthy, this could work for you. You can just invest the money you would have paid in premiums and then pay for long-term care if you need it. 

Life insurance with a long-term care rider: These are increasingly popular, because in the event you don’t need long-term care, the money passes on to your heirs. To most people, this is much better than giving it to the insurance company. Life insurance companies usually charge a small additional fee to add a long-term care rider to its life insurance policies. Learn more about accelerated death benefits (ADB) for long-term care in life insurance.

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

Life insurance with a chronic illness rider: Similar to long-term care rider, chronic illness rider offers similar benefits to pay for long-term care expenses. However, you can only be qualified to receive chronic illness rider if you suffer from the difficulty of performing at least 2 out of 6 ADLs and are diagnosed to suffer from a chronic disease, ie. it is a long-term condition and you are not predicted to recover from it. Many more companies offer chronic illness rider and some of which are free.

>>MORE: Long-Term Care Rider vs. Chronic Illness Rider: How are They Different and Where to Buy Them?

Hybrid long-term care and life insurance policy: To address the risk that you may invest a lot of money to a long-term care insurance policy but do not end up with needing it and lose all money, insurance companies develop hybrid long-term care and life insurance product. This has become more and more popular in the past years. If you end up with not needing it, your beneficiaries will receive the death benefit from the policy.

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

Health savings accounts: This is an account where you can set aside pre-tax money to pay for qualified medical expenses. You can earn tax-free interest on the account, too. You only qualify for this type of plan if you have a High-Deductible Health Plan (HDHP). How can you tell? For 2020, the minimum deductible for an individual is $1,400 and $2,800 for a family. You can also contact your health insurance company to see if your plan qualifies. 

Annuities: You can qualify for these even if you’re not in good health but expect to pay a hefty lump sum up front. Once you own the annuity, the growth on the account is tax-deferred and you’ll be able to receive monthly payments from the annuity. You can apply these to long-term care. 

>>MORE: 8 Alternatives to Long-Term Care Insurance

Where to Buy Long-Term Care Insurance

Long-term care insurance market has become very difficult in the past decade. There used to be hundreds of companies in this market, only a handful still offer long-term care insurance today. Several reputable companies have exited the market such as John Hancock and CalPERS. (click on the link to learn more why they stopped offering long-term care insurance).

Among those remaining in the market are Mutual of Omaha, Transamerica, National Guardian Life, New York Life, Genworth, and Northwestern Mutual Life. We have written in-depth review of the long-term care product of these companies, below are some highlights:

Last Thoughts

Long-term care insurance will help you pay for long-term care if you need it. It is necessary since more than half of us will need it one day. Without it, you might drain your entire nest egg. Navigating the world of long term care insurance might be complicated with lots of products and options, if you need help to find the best policy for you, feel free to schedule a free 30-min consultation with our licensed advisor, we are happy to help. As a broker, we work with 30+ reputable life insurance companies and will be in your side to find the best policy for you.

Thang Truong
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, 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 […]

Thang Truong
Thang Truong

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.  […]

Thang Truong
Thang Truong

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 […]

Thang Truong
Thang Truong

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 […]

Thang Truong
Thang Truong

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 […]

Thang Truong
Thang Truong

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 […]

Thang Truong
Thang Truong

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 […]

Thang Truong
Thang Truong

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 […]

Thang Truong
Thang Truong

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 […]

Thang Truong
Thang Truong

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 […]

Thang Truong
Thang Truong