Long-Term Care Insurance: Costs, Coverage, and When to Buy

Medicare doesn’t pay for custodial care — the day-to-day assistance with bathing, dressing, eating, and other basic activities that millions of older Americans eventually need. Neither do most health insurance plans. Long-term care insurance exists specifically to cover these costs, which now exceed $114,000 per year for nursing home care nationally and far more in high-cost states.

Planning for long-term care is one of the most emotionally charged and financially significant decisions in retirement planning. This guide explains what long-term care insurance covers, what it costs, the tax breaks that apply, who should buy it, and when to buy it.

What Is Long-Term Care?

Long-term care refers to assistance with Activities of Daily Living (ADLs) — the basic tasks that most people perform independently. The six standard ADLs are:

1. Bathing
2. Dressing
3. Eating
4. Continence
5. Toileting
6. Transferring (moving in and out of bed or chair)

Long-term care may also include help with Instrumental Activities of Daily Living (IADLs): managing medications, preparing meals, managing finances, shopping, housekeeping, and using transportation.

This type of care can be provided at home (by professional caregivers or family members), at an adult day center, at an assisted living facility, or in a nursing home. The need for it typically arises from:

• Age-related decline
• Chronic illness (dementia, Parkinson’s, stroke)
• Disability from injury or disease

Statistics: The U.S. Department of Health and Human Services estimates that someone turning 65 today has a nearly 70% chance of needing some form of long-term care before they die. Women need care for an average of 3.7 years; men for 2.2 years. About 20% of people will need care for more than 5 years.

What Does Long-Term Care Cost in 2026?

Costs vary by location and level of care. The figures below are national median annual costs from CareScout’s 2025 Cost of Care Survey (the most recent, with rates collected from providers nationwide between July and November 2025 — Genworth’s successor survey):

Two notes on the 2025 data. First, the survey now reports a single “non-medical caregiver” rate rather than separating homemaker and home health aide services, because their prices have converged. Second, costs keep climbing: assisted living rose 5% in a single year and in-home care 3%, outpacing general inflation.

Costs in high-cost-of-living areas (Northeast, California, Pacific Northwest) can run 50–100% higher. A private nursing home room in Connecticut or Massachusetts can exceed $170,000 per year. Over a 3-year care need — about the average — a private nursing home room runs roughly $389,000 nationally, and five years exceeds $600,000. These are the numbers that break otherwise-solid retirement plans — see healthcare costs in retirement for how long-term care fits the bigger picture.

What Medicare and Medicaid Do (and Don’t) Cover

Medicare covers short-term skilled care only:

• Up to 100 days in a skilled nursing facility after a qualifying 3-day hospital stay (with a daily copay after day 20 — see Medicare Part A)
• Home health care when skilled nursing or therapy is needed
• Hospice care for terminal illness

Medicare does not cover custodial care — help with daily activities when skilled medical care isn’t needed. This is the gap where long-term care costs accumulate.

Medicaid covers long-term care, but only for people with very limited assets and income. Medicaid eligibility typically requires:

• Assets below $2,000 (in most states), with exceptions for a home, car, and some personal property
• Income below specific thresholds (varies by state)

Some people plan to “spend down” to Medicaid eligibility. However, Medicaid has look-back periods — in most states, 5 years for nursing-home Medicaid and for transfers to irrevocable trusts. Transfers of assets within the look-back period can disqualify you for a calculated penalty period. The mechanics are involved enough that we cover them separately in Medicaid planning for long-term care.

For middle-class retirees who don’t qualify for Medicaid but would be devastated by long-term care costs, long-term care insurance is the primary private solution.

How Long-Term Care Insurance Works

A long-term care insurance policy pays a daily or monthly benefit for covered care when you meet the benefit trigger:

Benefit trigger: Most policies pay when you:

• Cannot perform 2 of 6 ADLs without assistance, OR
• Have a cognitive impairment (such as Alzheimer’s) that requires substantial supervision

Benefit amount: Policies typically pay a daily benefit ranging from $100 to $300+ per day for nursing home care. Home care benefits are often 50–100% of the nursing home daily benefit.

Benefit period: How long the policy pays — ranging from 2 years to unlimited lifetime. Most financial planners recommend at least a 3-year benefit period, because the average care need runs about that long.

Elimination period: This is the deductible, expressed in days. You pay out-of-pocket for the first 30, 60, 90, or 180 days of qualifying care before insurance kicks in. A 90-day elimination period is most common.

Inflation protection: Critical. Without it, a $200/day benefit you buy at 55 may be worth far less at 80. Common options:

• 3% compound inflation protection (recommended minimum)
• 5% compound inflation protection (most comprehensive, most expensive)
• Simple inflation (less valuable than compound)
• Future Purchase Option (ability to buy more coverage without evidence of insurability, but at market rates — often expensive)

A Worked Example

Suppose you buy a policy at age 60 with a $200/day benefit ($6,000/month), a 3-year benefit period, a 90-day elimination period, and 3% compound inflation protection. Your initial benefit pool is about $200 × 365 × 3 ≈ $219,000.

If you don’t file a claim until age 85, inflation protection has been quietly compounding for 25 years. At 3% compound, your daily benefit has grown to roughly $419/day and your pool to about $459,000 — more than double what you bought. That is the entire point of inflation protection, and why buying a small benefit without it is often a false economy: a $200/day policy purchased today buys far less than $200 of care in 2050.

How Much Does Long-Term Care Insurance Cost?

Premiums depend on your age, health, coverage amount, and inflation protection. Sample annual premiums from the American Association for Long-Term Care Insurance (AALTCI) for a couple each buying roughly $165,000 of initial benefits with 3% compound inflation protection:

Premiums increase significantly with age, and health underwriting gets stricter. Pre-existing conditions can lead to exclusions or denial of coverage. Approximately 20–30% of applicants over 65 are declined.

The Tax Breaks: Deductions, HSAs, and Tax-Free Benefits

A tax-qualified long-term care policy (the vast majority sold today) carries three distinct tax advantages that many buyers overlook:

1. Premiums count as deductible medical expenses — up to an age-based cap. The IRS sets an annually-indexed “eligible premium” limit per insured person based on attained age at year-end. For 2026 (IRS Revenue Procedure 2025-32), the limits are:

This eligible amount is added to your other medical expenses, which are deductible only to the extent they exceed 7.5% of adjusted gross income if you itemize. Self-employed people and certain business owners may deduct the eligible premium more favorably. Coordinating this with your other deductions is part of broader retirement tax planning.

2. You can pay premiums tax-free from an HSA. A Health Savings Account can reimburse the same age-based eligible premium amount tax-free — a valuable option if you funded an HSA while working. (Note that you must stop HSA contributions once you enroll in Medicare; see HSAs and Medicare.)

3. Benefits are generally received tax-free. Reimbursement-model benefits paid for actual care are excluded from income. Indemnity (cash) policies are tax-free up to an IRS per-diem limit, indexed annually.

State Partnership Programs: Protecting Assets From Medicaid

One of the most underused features in long-term care planning is the Long-Term Care Partnership Program, available in most states. A Partnership-qualified policy gives you dollar-for-dollar Medicaid asset protection: every dollar the policy pays in benefits is a dollar of assets you can keep and still qualify for Medicaid if your policy benefits run out.

Example: you buy a Partnership policy that pays out $200,000 over a long care event, then exhaust it. When you apply for Medicaid, the normal ~$2,000 asset limit is increased by $200,000 — so you can protect $202,000 in assets instead of spending down to near-zero. This makes a modest 3-year policy function as both insurance and an estate-protection tool, which is why Partnership policies are often the sweet spot for middle-class retirees who can’t self-insure but want to leave something behind. Ask any agent whether a quoted policy is Partnership-qualified in your state.

When Is the Best Time to Buy?

Most financial planners recommend buying between ages 55 and 65. Here’s why:

• Premiums are lower: Every year of delay increases premiums
• Better chance of approval: Health underwriting is more favorable when you’re younger
• More options: You can lock in inflation protection at a lower premium base
• Longer potential premium-paying period: But cumulative premiums paid are often similar because you pay for more years

Why not buy earlier (40s or early 50s)?

• You’ll pay premiums for more years before potentially using the benefit
• Insurance companies can raise premiums over time (most states allow this)
• Many people drop policies after years of premium increases — a significant risk

The “right” time depends on your financial situation, health, and family history. A family history of dementia is a strong indicator to buy earlier.

Premium Rate Increases: The Industry’s Biggest Problem

Long-term care insurance has a troubled history. In the 1990s and early 2000s, insurers significantly underpriced policies. As claims came in higher than expected and interest rates fell (reducing investment returns), many insurers requested large rate increases from state regulators.

Policyholders who bought “level premium” policies have seen increases of 50–100% or more over time. This has led some policyholders to drop coverage they no longer afford, losing all premiums paid.

When evaluating policies, ask:

• What is the insurer’s rate increase history on this product?
• Is the policy “participating” or “non-participating” for dividends?
• What is the insurer’s financial strength rating (A.M. Best, Moody’s)?

Stick with financially strong, established insurers with a track record of stable or modest rate increases.

Alternative Products

The traditional long-term care insurance market has shrunk as major insurers exited. Alternatives include:

Hybrid life/LTC policies: A life insurance policy with a long-term care rider. You pay a premium or a lump sum, and if you need long-term care, the policy accelerates the death benefit to pay for care. If you never need care, the death benefit passes to heirs. These are increasingly popular and solve the “use it or lose it” objection.

Annuities with LTC riders: Similar concept — an annuity that can be used for long-term care if needed, or for retirement income if not. See annuities for retirement income for how the underlying annuity works.

Asset-based LTC: A single lump-sum payment that creates a pool of long-term care benefits, often 2–3x the deposited amount. Eliminates premium rate increase risk.

Short-term care insurance: Covers a limited benefit period (usually up to 360 days). Less expensive than traditional LTC insurance and less restrictive underwriting. Fills the Medicare skilled nursing facility gap.

Who Should Buy Long-Term Care Insurance?

Long-term care insurance generally makes financial sense for people with:

• Assets between $200,000 and $2 million: Too much to easily qualify for Medicaid; not enough to self-insure comfortably against a multi-year care event
• Good to excellent health at time of application: Needed to qualify and to get favorable rates
• Family history of dementia or chronic illness: Increases probability of needing care
• A spouse or dependent to protect: Insurance protects the healthy spouse’s finances when one spouse needs expensive care — a core piece of spousal Medicare and retirement strategy
• Income to sustain premiums indefinitely: Annual premiums must be sustainable even if increased by 30–50%

Self-insuring (relying on your own assets to pay for care) may be appropriate if you have assets exceeding $2–3 million and are comfortable potentially spending $500,000+ on care. Some retirees earmark home equity — through downsizing or a reverse mortgage — as a backstop for care costs.

Frequently Asked Questions

Does Medicare ever pay for long-term care? Only short-term skilled care: up to 100 days in a skilled nursing facility after a qualifying hospital stay, plus skilled home health and hospice. It never pays for purely custodial (ADL) care, which is what most long-term care actually is.

Are long-term care insurance premiums tax-deductible? Yes, within limits. For a tax-qualified policy, an age-based “eligible premium” (up to $6,200 per person in 2026) counts as a medical expense, deductible only to the extent your total medical expenses exceed 7.5% of AGI. You can also pay the eligible amount tax-free from an HSA.

What’s the difference between a Partnership policy and a regular one? A Partnership-qualified policy adds dollar-for-dollar Medicaid asset protection — every benefit dollar paid lets you keep an extra dollar of assets and still qualify for Medicaid later. The coverage is otherwise the same; always ask whether a quote is Partnership-qualified.

Is it too late to buy at 70? Not necessarily, but expect higher premiums and stricter underwriting — roughly 20–30% of applicants over 65 are declined. If traditional coverage is denied, a hybrid life/LTC or asset-based policy with easier underwriting may still be available.

What happens if I stop paying premiums? On a traditional policy you generally lose coverage and all premiums paid, though some policies include a “contingent nonforfeiture” benefit that preserves a reduced amount of paid-up coverage after a steep rate increase. Hybrid and asset-based policies avoid this risk because your principal is not forfeited.

Connecting Long-Term Care to Your Overall Plan

Long-term care planning doesn’t exist in isolation. It connects to:

• Medicare coverage gaps: Understanding what Medicare does and doesn’t cover helps you size the need for LTC coverage. See our guide on Medicare Part A for hospitalization and skilled nursing details, and the Medicare Savings Programs and Medicaid planning guides for low-asset paths.
• Required Minimum Distributions: If IRA withdrawals are needed to pay LTC premiums, they’re taxable income — factor into tax planning.
• Spousal benefits: If one spouse needs long-term care and depletes joint assets, the surviving spouse’s retirement security — including potential Social Security spousal benefits — is at stake.

Key Takeaways

• Long-term care (help with ADLs) is not covered by Medicare beyond 100 days of skilled nursing — custodial care costs fall entirely on you or private insurance
• Nursing home costs now average $115,000–$130,000/year nationally (2025 CareScout survey); 70% of people turning 65 will need some long-term care
• Long-term care insurance pays a daily benefit when you can’t perform 2 of 6 ADLs or have cognitive impairment — and inflation protection roughly doubles the benefit over 25 years
• Premiums are tax-deductible up to an age-based limit ($6,200/person at 71+ in 2026), payable tax-free from an HSA, and benefits are generally tax-free
• A state Partnership policy adds dollar-for-dollar Medicaid asset protection — often the sweet spot for middle-class retirees
• The best time to buy is typically between 55 and 65 — premiums are lower and underwriting is more favorable
• Hybrid life/LTC and asset-based policies solve the “use it or lose it” objection and the premium-rate-increase risk

Sources

• Medicaid.gov — Long-term services and supports
• Medicare.gov — Skilled nursing facility (SNF) care coverage
• Medicare.gov — Home health services coverage
• State Health Insurance Assistance Program (SHIP) — free Medicare counseling

All sources are official government or nonprofit consumer resources, verified July 2026. Medicare and Social Security rules and dollar amounts change annually — confirm current figures at the links above before making decisions.