What Long-Term Care Insurance Covers

While Medicare and Medicaid both help aging adults afford some of their medical expenses, they may not cover the cost of an extended illness or disability. That’s where long-term care insurance comes into play. Long-term care insurance helps policyholders pay for their long-term care needs, such as nursing home care. This could become vital in the later years of your life, as LTC insurance acts as a safety net beneath your normal benefits.

A financial advisor can help you put together a financial plan for your healthcare needs.

What Is Long-Term Care Insurance?

Long-term care insurance is a type of insurance designed to help pay for services that assist people who can no longer perform certain everyday activities independently due to aging, illness or disability. Unlike traditional health insurance or Medicare, which primarily cover medical treatment, long-term care insurance helps cover the cost of ongoing personal care and supportive services that may be needed over an extended period.

Coverage generally becomes available when a policyholder is unable to perform a specified number of activities of daily living, such as bathing, dressing, eating, transferring, toileting or maintaining continence or develops a qualifying cognitive impairment, such as Alzheimer’s disease. Once eligibility requirements are met, benefits can be used to help pay for care in a variety of settings, including the policyholder’s home, an assisted living facility, an adult day care center or a nursing home, depending on the policy’s terms.

Most policies have benefit limits, waiting periods and maximum coverage durations that determine how much the insurer will pay and for how long. Premiums vary based on factors such as age, health, benefit amount and optional features, so many people purchase coverage before retirement while they are still in good health.

For individuals concerned about preserving retirement savings or reducing the financial burden on family members, long-term care insurance can serve as an important part of a broader retirement and estate planning strategy. Understanding how these policies work is the first step toward evaluating whether the potential benefits justify the cost.

When You Should Consider Long-Term Care Insurance

During the financial planning process, it’s important to consider long-term care costs. This is important if you are close to retirement age. Unfortunately, if you wait too long to purchase coverage, it may be too late. Many applicants may not qualify if they already have a chronic illness or disability.

According to the U.S. Department of Health and Human Services, an adult turning 65 has a 70% chance of needing some form of long-term care. While only one-third of retirees may never need long-term care coverage, 20% may need it for five years or longer. With a semi-private nursing home room averaging about $7,908 per month according to data from Genworth, long-term care could end up being a huge financial burden for you and your family.

Most health insurance policies won’t cover long-term care costs. Additionally, if you’re counting on Medicare to assist you with these extra expenses, you may be out of luck. Medicare doesn’t cover long-term care or custodial care. Most nursing homes classify under the custodial care category. This classification of care includes the supervision of your daily tasks.

So, if you don’t have long-term care insurance, you’re on the hook for these expenses. However, it’s possible to get help through Medicaid for low income families. But keep in mind, you may only receive coverage after you deplete your life savings. Just know that Medicare may cover short-term nursing care or hospice care, but little of the long-term care in between.

What Long Term Care Insurance Covers

So what does long term care insurance cover, Well, since the majority of long-term care policies are comprehensive policies, they may cover at-home care, adult day care, assisted living facilities (resident care or alternative care), and nursing home care. At home, long-term care may cover the cost of professional nursing care, occupational therapy, or rehabilitation. This may also include assistance with daily tasks, including bathing or brushing teeth.

Additionally, long-term care coverage can cover short-term hospice care for individuals who are terminally ill. The objective of hospice care is to help with pain management and provide emotional and physical support for all parties involved. Most policies allow beneficiaries to obtain care at a hospice facility, nursing home, or in the comfort of their own home. However, most hospice care is not considered long-term care and may receive coverage through Medicare.

Also, long-term care insurance can help cover the costs of respite care or temporary care. These policy extensions provide time off to those who care for an individual on a regular basis. Usually, respite care provides compensation to caregivers for 14 to 21 days a year. This care can take place at a nursing home, adult daytime care facility, or at home

What Long-Term Care Insurance Doesn’t Cover

Long-term care insurance is designed to pay for qualifying custodial and personal care, but it does not cover every health-related expense. Routine doctor visits, hospital stays, prescription drugs, surgery and other medical treatments are generally handled by health insurance or Medicare rather than a long-term care policy.

Most policies also exclude care provided before the elimination period ends. This waiting period often requires the policyholder to pay for services out of pocket for a set number of days after becoming eligible for benefits. Expenses that exceed the policy’s daily or monthly benefit limit are also the policyholder’s responsibility.

Coverage may be restricted for care received outside approved settings or from providers who do not meet the insurer’s requirements. Some policies may not reimburse informal care provided by family members, while others cover it only when specific conditions are met.

Long-term care policies may also contain exclusions related to certain preexisting conditions, self-inflicted injuries, substance abuse or care received outside the United States. Because exclusions and limitations vary, reviewing the policy’s benefit triggers, covered services and definitions before purchasing coverage can help prevent unexpected gaps.

How Much Long-Term Care Insurance Costs

The cost of long-term care insurance varies widely based on factors such as your age, health, gender, coverage amount, benefit period and optional policy features. In general, premiums are lower for people who purchase coverage at a younger age and while they are in good health, which is why many buyers begin shopping for policies in their 50s or early 60s.

The level of coverage you choose also plays a significant role in determining cost. Policies with higher daily or monthly benefit amounts, longer benefit periods and inflation protection typically carry higher premiums. Inflation riders, in particular, can increase the cost of a policy but may help preserve purchasing power as long-term care expenses rise over time.

Insurance companies also evaluate an applicant’s medical history during underwriting. Individuals with certain health conditions may pay higher premiums, face coverage limitations or be declined altogether. Because underwriting standards vary by insurer, comparing quotes from multiple companies can help you find coverage that meets your needs at a competitive price.

While premiums can represent a significant expense, it’s important to compare that cost with the potential financial impact of needing long-term care without insurance. Evaluating your retirement savings, expected income and family circumstances can help determine whether long-term care insurance fits into your broader financial plan.

Bottom Line

Long-term care insurance can help protect your retirement savings by covering services that traditional health insurance and Medicare often do not. However, coverage, costs and benefits vary significantly from one policy to another, making it important to compare options carefully and purchase coverage before health issues limit your choices. Evaluating your financial resources, family circumstances and potential long-term care needs can help you decide whether long-term care insurance is an appropriate part of your retirement plan.

Retirement Tips

If you’re unsure what long-term care might mean to your retirement plans, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The looming costs of long-term care may have you thinking about how much money you’ll need for retirement. If you aren’t sure how you stack up against people your age in retirement savings, check out SmartAsset’s guide to average retirement assets.