Long-term care insurance pays for help when you need daily assistance due to age, illness, or injury

Long-term care insurance is a policy that covers the cost of extended care services — things like nursing home stays, assisted living, in-home care, or adult day programs. Unlike health insurance, which pays for medical treatment to cure or manage a condition, long-term care insurance pays for the day-to-day help you need when you can no longer do routine tasks on your own.

The policy kicks in when you meet the policy's definition of needing care, which typically means you cannot perform two or three of six activities of daily living (ADLs) without help. Those activities are eating, bathing, dressing, toileting, continence, and transferring (moving from bed to chair). Some policies also cover cognitive impairment like dementia, even if you can still do physical tasks.

Most people buy this insurance in their 50s or early 60s, before they have health problems that would make it expensive or impossible to obtain. The younger and healthier you are when you apply, the lower your premiums will be.

Key Takeaways

  • Long-term care insurance covers non-medical daily assistance like bathing, dressing, and eating when you cannot do these tasks yourself, not the medical treatment itself.
  • You choose a daily benefit amount (like $150 or $300 per day) and a benefit period (how long the policy will pay), and your premium depends on both.
  • Most policies have a waiting period of 30 to 100 days after you start needing care before benefits begin, which reduces your premium.
  • Premiums can increase over time, and some policies allow you to lock in a rate or choose a non-forfeiture option that protects part of your investment if you stop paying.
  • You typically buy this insurance before age 65 and before any serious health diagnosis, because insurers charge much more or deny coverage once you have certain conditions.

What the policy actually pays for

Long-term care insurance reimburses you for care in several settings. If you need a nursing home, the policy covers room, board, and care. If you move to assisted living, it covers your rent and the assistance staff provide. If you stay home and hire a caregiver or home health aide, the policy reimburses those wages. Some policies also cover adult day care programs, respite care (temporary relief for a family caregiver), or hospice.

What it does not cover: the policy does not pay for medical doctors, medications, or hospital stays. Those are the job of health insurance and Medicare. Long-term care insurance is strictly for the help with daily tasks and the room you live in while receiving that help.

The policy pays up to a daily benefit amount you choose when you buy it — commonly $100, $150, $200, or $300 per day. If your actual costs are lower, you pay the difference. If your costs are higher, you pay the difference. The policy also has a benefit period — the length of time it will pay. You might choose three years, five years, or lifetime benefits. Longer benefit periods cost more in premiums.

How premiums work and what affects the cost

Your premium depends on your age when you buy the policy, your health at that time, the daily benefit amount you choose, and the benefit period. A 55-year-old in good health buying a policy with a $200 daily benefit and a five-year benefit period will pay far less per month than a 65-year-old buying the same coverage, or a 55-year-old with diabetes or heart disease.

Premiums are not locked in for life on most policies. Insurers can raise rates on an entire class of policyholders — for example, all people who bought a particular plan in 2015. These increases have happened regularly over the past 20 years. Some insurers offer a non-forfeiture rider, which means if you stop paying premiums, you keep a reduced benefit rather than losing everything you paid in. This rider costs more upfront but protects your investment.

Most policies include a waiting period (also called an elimination period) of 30, 60, or 100 days. During this time, you pay your own care costs. After the waiting period ends, the policy begins reimbursing you. A longer waiting period lowers your monthly premium because the insurer's risk is smaller.

Who should consider buying this insurance

Long-term care insurance makes the most sense if you have significant assets to protect but not enough to pay for years of care out of pocket. If you have less than $50,000 in savings, you will likely spend down to Medicaid limits anyway, and Medicaid will cover nursing home care (though not assisted living in most states). If you have $500,000 or more in liquid assets, you may be able to self-insure — pay for care yourself without the insurance premiums.

The middle ground — people with $100,000 to $500,000 in savings — often benefit most from this insurance. A year in a nursing home can cost $80,000 to $120,000 depending on your region and the facility's quality. A few years of that cost can wipe out a lifetime of savings and leave a surviving spouse or children with much less inheritance.

You should buy this insurance before age 65 and before any diagnosis of heart disease, diabetes, cancer, dementia, or other serious condition. Insurers underwrite these policies carefully and will either deny you or charge much higher premiums if you have a health history.

The difference between long-term care insurance and other coverage

Medicare covers up to 100 days in a skilled nursing facility after a hospital stay of at least three days, but only if you are recovering from an acute illness or injury. It does not cover custodial care (help with daily tasks when there is no medical recovery expected) or assisted living. Once Medicare stops paying, you pay out of pocket or turn to Medicaid.

Medicaid covers nursing home care for people whose income and assets fall below state limits (usually around $2,000 in countable assets). It does not cover assisted living in most states. Medicaid is a means-tested program, so you must spend down your savings to may have access to. Long-term care insurance lets you keep your assets while still having care paid for.

Life insurance with a long-term care rider is a hybrid product. It combines a death benefit with a long-term care benefit. If you never need care, your beneficiaries receive the death benefit. If you do need care, you can draw down the death benefit to pay for it. These policies cost more than standalone long-term care insurance but appeal to people who want to may provide their money is used one way or another.

When to buy and how to apply

The best time to buy is in your mid-50s to early 60s, when premiums are still reasonable and you are unlikely to have health problems that trigger a denial. Waiting until 70 or 75 means much higher premiums, and waiting until you actually need care means you cannot buy it at all.

You apply directly to an insurance company or through an insurance agent. The company will ask for your medical history, order medical records from your doctors, and may require a phone interview or in-person exam. The underwriting process typically takes two to four weeks. If you are denied, you can apply to a different insurer — underwriting standards vary — or ask about a policy with a higher waiting period or lower daily benefit, which may be approved at a higher rate.

Some employers offer group long-term care insurance plans, which have less strict underwriting and lower premiums than individual policies. If your employer offers this, it is usually worth exploring, even if you do not buy it immediately.

Common reasons people do not buy this insurance

Cost is the biggest barrier. Monthly premiums for a 60-year-old in good health can range from $100 to $300 or more, depending on the benefit amount and period. Over 20 or 30 years, that adds up. Some people bet they will not need care, or that they will die before needing it. Others assume their children will help, or that they will move in with family rather than pay for a facility.

Another concern is that premiums can increase. If your policy's rate class gets a 20 or 30 percent increase, you have to decide whether to pay more, reduce your benefits, or drop the policy entirely. This has happened to many policyholders over the past two decades, and it is a real risk to factor in.

Some people wait too long and then cannot buy insurance because of health problems. Others buy a policy, pay premiums for years, never need care, and feel they wasted the money. Long-term care insurance is a bet that you will need care someday — and that the cost of that care will be high enough to justify the premiums you paid.

Frequently Asked Questions

Does long-term care insurance cover Alzheimer's disease or dementia?

Most policies cover dementia and Alzheimer's even if you can still perform physical daily activities. The policy typically pays if you have a cognitive impairment that requires supervision or assistance. Check your specific policy language, because some policies require both cognitive impairment and inability to do two or three physical activities of daily living.

Can I buy long-term care insurance if I already have a health condition?

It depends on the condition and the insurer. Minor conditions like well-controlled high blood pressure may not disqualify you, though your premium will be higher. Serious conditions like heart disease, cancer, dementia, or diabetes usually result in denial or a very high rate. Some insurers are more lenient than others, so if one denies you, another may approve you.

What happens if I stop paying premiums?

If you drop the policy, you lose coverage and your premiums are gone. Some policies have a non-forfeiture rider that lets you keep a reduced benefit even if you stop paying. Without that rider, there is no refund or residual value. This is why some people choose policies with lower daily benefits or shorter benefit periods — they can afford the premiums long-term.

Does long-term care insurance cover in-home care?

Yes, most policies cover care you receive at home, including hired caregivers, home health aides, and adult day programs. The policy reimburses you up to your daily benefit amount. Some policies limit home care to a percentage of the nursing home benefit, so read the fine print.

Can I use long-term care insurance to pay a family member who cares for me?

Many policies allow you to pay a family member, though some exclude spouses or adult children. The family member usually has to be a licensed caregiver or the policy may require documentation that they are providing genuine care. Ask the insurer about their rules before you buy.