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Should I Buy Long-Term Care Insurance?


Long-term care insurance is designed to help cover the cost of nursing home care. This type of insurance can help to fill a financial gap that isn’t covered by Medicare, without requiring you to spend down assets to qualify for Medicaid. Before deciding if long-term care insurance is right for you, it’s important to understand how it works and what it may cost. A financial advisor may be a good resource to turn to for help making your decision. Try using SmartAsset’s free advisor matching tool today to find advisors that serve your area.

What Is Long-Term Care Insurance?

Long-term care insurance is a type of insurance policy that’s meant to pay for long-term care needs that aren’t covered by regular health insurance or Medicare. Specifically, long-term care insurance is designed for people who have chronic health conditions, disabilities or illnesses that prevent them from caring for themselves.

A long-term care insurance policy can cover things like dressing, bathing and feeding as well as nursing care. This type of coverage can be used to pay for healthcare-related expenses incurred at:

  • A nursing home
  • Your own home
  • Assisted living facilities
  • Adult daycare centers

Private health insurance typically doesn’t pay for long-term care needs. Long-term care costs are generally not covered by Medicare, which is government-sponsored health insurance that you can apply for beginning at age 65. Medicaid will pay for long-term care but only for seniors and other individuals who qualify for it, based on their income and financial assets.

Who Needs Long-Term Care Insurance?

should I buy long term care insurance

Long-term care is something a majority of Americans are likely to need at some point. Someone turning 65 today has an almost 70% chance of needing some type of long-term care. Twenty percent of seniors who require long-term care will need it for more than five years.

You may need long-term care insurance if any of the following apply to you.

  • Expect to need long term care at some point, either for themselves or their spouse
  • Don’t have private health insurance to cover the cost
  • Don’t qualify for Medicaid or would prefer not to have to spend down assets to qualify

As mentioned, Medicaid will pay for long-term care costs but there are a few catches. First, you have to be able to qualify for Medicaid coverage based on your income and assets. That means if you’ve accumulated a decent amount of wealth, you’d likely have to spend some of it down first before you could become eligible for Medicaid.

Giving away assets during your lifetime or establishing a Medicaid asset protection trust can help. But there’s a lookback period you have to observe in order for those gifts to be considered valid. Once you pass away, your state may pursue Medicaid estate recovery to claw back some of the costs of your care from your estate. So Medicaid, though it can be helpful for paying for long-term care, isn’t necessarily a perfect solution.

Should I Buy Long-Term Care Insurance?

Whether you should buy long-term care insurance depends largely on your health insurance coverage and/or ability to self-pay for these costs. Someone who maintains private health insurance past age 65 because they’re still working, for instance, may have long-term care included as part of their policy. So they may not need a separate long-term care insurance policy. However, this is more the exception than the rule.

Someone who has a higher net worth may not need to purchase long-term care insurance if they have sufficient assets to pay for the cost out of pocket. But it’s important to consider the cost of care. The median annual cost of long-term care in 2020 ranged from $19,240 for adult day care services to $105,850 for a private room in a nursing home facility. So it’s possible that a two-and-a-half-year stay in a nursing facility could run upwards of $260,000.

Paying that much toward care out of pocket could shrink the amount of wealth you have to leave behind to your spouse, children or other heirs. Long-term care insurance, on the other hand, would allow you to preserve that wealth. It would also allow you to avoid having to spend down assets to qualify for long-term care coverage through Medicaid.

It’s important to consider what you’ll pay for long-term care coverage if you decide to buy it and what your policy will cover. A couple who purchases a policy at age 55, for example, would pay a combined yearly premium of $3,050 on average, according to the American Association for Long-Term Care Insurance. That premium rate would apply for a policy with an initial pool of benefits equal to $164,000 at age 55 and $386,500 at age 85 for each spouse.

Long-Term Care Insurance Alternatives

Aside from paying out of pocket, buying long-term care insurance or qualifying for Medicaid, there are a few other options for managing long-term care costs. Some of the ways you could pay for long-term care include:

  • Taking advantage of accelerated death benefits in your life insurance policy (if you have them)
  • Borrowing against, cashing out or selling your life insurance policy
  • Purchasing an annuity
  • Opting for a hybrid life insurance policy

Cashing out a life insurance policy or selling it through a life settlement could put cash in your hands to pay for long-term care coverage. An annuity can provide a steady stream of income to help pay for long-term care or other costs in retirement if you end up remaining healthy. And hybrid life insurance policies combine a death benefit with long-term care coverage. If you end up needing long-term care, those expenses are covered by the policy. And if you don’t, you still have a death benefit available to leave behind to your beneficiaries.

Bottom Line

should I buy long term care insurance

Long-term care costs can be a serious drain on your wealth but having the right insurance can help you to preserve it. While there may be other drawbacks, it’s always a good idea to be prepared for what life throws at you. Considering the cost, coverage options and your overall financial situation can make it easier to determine whether long-term care insurance is right for you.

Insurance Planning Tips

  • Consider talking to a financial advisor about whether it makes sense for you to purchase long-term care insurance. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • In addition to long-term care insurance, life insurance is something most people need to have. There are different types of life insurance you can choose from, including term and permanent life. Calculating how much life insurance you need can help when choosing which policy is best for you.

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