Long-Term Care Insurance: What to Know, What to Ask, and How to Choose

A guide to navigating one of retirement's most important decisions

Long-term care is a retirement risk that most people hope won't apply to them - and one that catches many off guard when it does. f you are approaching age 65, the data surrounding extended care is a sobering reality check for your financial future:

• The Likelihood: Roughly 56% of Americans turning 65 today will need some form of long-term care during their remaining years (1).

• The Duration: While many will only need short-term help, about 22% (more than 1 in 5 adults) will require comprehensive care and assistance for more than five years.

• The Cost: The financial toll is staggering and highly dependent on your location. The average cost of a private nursing home can easily exceed $100,000 annually in many markets, and a semi-private room can still be over $100,000 per year depending on where you live. For those who prefer to age at home or in a community setting, assisted living facilities average $72,000 annually, and full-time home health aides can rapidly climb to $80,000+ a year (2).

Despite these realities, most people approaching retirement haven’t developed a plan for how they’d pay for extended care. Some assume Medicare will cover it (it mostly won’t). Others plan to rely on family (which carries its own costs). And many simply avoid the topic because it’s uncomfortable.

This guide is designed to change that. We’ll walk through how to assess your need, what to look for in a policy, the four main product types available, and how the tax rules work.

Step One: Assess Your Actual Need

Before shopping for any product, start with an honest evaluation of your risk. Consider your family’s health history and your own expectations about longevity. If your parents or grandparents dealt with cognitive decline, mobility issues, or extended care needs, your probability of facing similar challenges is elevated.

Long-term care benefits are typically triggered when a person needs assistance with two or more of the six activities of daily living (ADLs): bathing, dressing, eating, transferring, toileting, and continence. Cognitive impairments—such as Alzheimer’s or dementia—can also trigger benefits even if physical ADLs aren’t an issue. Understanding these triggers matters because they define when a policy actually starts paying.

Think also about the people around you. Do you have a spouse or adult children who could provide or manage care? If so, some policies will pay family caregivers or cover caregiver training—a valuable feature that’s easy to overlook. And even if family support is available, consider the emotional and financial toll that caregiving places on those family members. Long-term care insurance isn’t just about protecting your assets; it’s about protecting the people you’d otherwise lean on.

▶ Reality check: Don’t assume your health insurance fills this gap. Medicare covers only limited skilled nursing care following a hospital stay, and most employer health plans offer no long-term care coverage at all. Medicaid does cover long-term care, but in most states, you must spend down nearly all of your assets—which defeats the purpose of decades of saving.

Step Two: Understand What You’re Buying

Long-term care policies vary widely, and the details matter more than with almost any other type of insurance. Start by researching the cost of care in your community—national averages are useful benchmarks, but what you’ll actually pay depends heavily on where you live.

Key decisions include:

• Types of care covered: Home health care, adult day care, assisted living, nursing home care, or some combination.

• Duration of benefits: Commonly two years, five years, or lifetime.

• Benefit amount: The daily or monthly maximum the policy will pay.

• Elimination period: The waiting period before benefits begin (essentially a deductible measured in time rather than dollars).

• Inflation protection: This increases your benefit amount over time to keep pace with rising care costs. Without it, a policy that seems adequate today may fall short 20 years from now.

Other features worth evaluating include nonforfeiture protection (which preserves some benefit even if you stop paying premiums), the option to purchase additional coverage in the future without new medical underwriting, reimbursement for home modifications and medical equipment, and the choice between reimbursement-style benefits versus indemnity-style benefits.

Your age and health at the time of application directly affect both your eligibility and your pricing. Certain pre-existing conditions can disqualify you entirely, and medical underwriting standards vary by insurer. This is one of the reasons many advisors recommend evaluating LTC coverage in your mid-50s to early 60s—healthy enough to qualify, young enough to lock in reasonable premiums.

Step Three: Know Your Product Options

The long-term care insurance market has evolved significantly over the past two decades. Today, there are four main product categories, each with a different structure, cost profile, and set of trade-offs.

1. Traditional Long-Term Care Insurance

This is the original, purpose-built product. It provides LTC protection only—no death benefit, no cash value. You pay annual premiums indefinitely, and if you need care, the policy pays an agreed-upon monthly benefit for a specified number of years.

• The Upside: Traditional policies typically offer the lowest initial annual premium and the most comprehensive LTC-specific features, including inflation protection via a cost-of-living adjustment (COLA) rider and eligibility for Medicaid partnership programs. Traditional policies can also be deducted as a medical expense on Schedule A (subject to the 7.5% AGI floor and age-based limits), and self-employed individuals may take an above-the-line deduction. Premiums can also be paid or reimbursed from an HSA.

• The Downside: Premiums are not guaranteed—the insurer can (and many have) increased premiums over time, sometimes substantially. And if you never need care, the premiums are gone with nothing to show for them.

2. Life and LTC Insurance Hybrid

Hybrid policies combine long-term care coverage with a death benefit. They’re primarily designed as LTC protection, but if you never use the care benefits, your heirs receive a death benefit instead. They also typically include a return-of-premium or cash value component, which means you can get some or all of your money back if you cancel.

• The Upside: These policies are usually structured with guaranteed premium designs, eliminating the rate-hike risk historically associated with traditional policies. Like traditional LTC, hybrids create a dedicated benefit pool and can offer inflation protection through a COLA rider. The death benefit is not subject to federal income tax.

• The Downside: They are usually funded with a single lump-sum payment or a limited pay schedule (5-pay, 10-pay, or paid to age 65), which requires liquid assets to deploy. Premium deductibility for hybrids is more complex and generally depends on the portion of the premium allocated to LTC benefits. Note: IRS regulations allow HSA funds to be used to pay for hybrid policy premiums but only for the portion of the premium allocated to the LTC benefits.

3. Life Insurance With an LTC Rider

This is a permanent life insurance policy first—with the added flexibility to accelerate the death benefit to pay for long-term care if needed. The key distinction from a hybrid is that there’s no separate LTC benefit pool; the total LTC benefits paid out cannot exceed the death benefit. It’s designed for someone who wants to maximize their permanent death benefit while retaining the option to redirect it toward care costs.

• The Upside: Many of these permanent life contracts feature fixed, guaranteed premium structures that protect against unexpected rate increases. The policy builds accessible cash value.

• The Downside: Because the LTC benefit draws directly from the death benefit, using it for care reduces or eliminates the legacy to your heirs. These policies do not qualify for Medicaid partnership programs and premiums are not deductible as LTC insurance.

Furthermore, they do not offer traditional standalone COLA inflation riders, meaning your care benefit pool is entirely capped by the size of your death benefit (though your available care pool may scale upward if you choose an escalating death benefit design or generate strong policy performance).

4. Annuity With an LTC Rider

This product is primarily an annuity—providing income benefits and accumulation—with an LTC rider that allows you to accelerate or increase distributions if a qualifying care need arises. Annuities with LTC riders are typically funded with a single premium or ad hoc contributions.

• The Upside: Medical underwriting is often minimal or limited to a phone interview, making it an excellent option for people who might be declined by other LTC products due to health issues. The insurer cannot increase your premium. Most importantly, under the Pension Protection Act (PPA), any distributions utilized directly to pay for qualified long-term care expenses are received 100% tax-free, even if the annuity contains substantial untaxed growth.

• The Downside: The residual market or accumulation value passes to your beneficiaries, and that residual value is subject to federal income tax. These products do not qualify for Medicaid partnership status, and premiums are not deductible as LTC insurance. While some carriers offer inflation riders to grow your care pool, standard base contracts lack built-in inflation protection, meaning your initial care benefit is heavily tied to your initial deposit.

Step Four: Consider How You’ll Pay for It

How you fund long-term care coverage matters almost as much as which product you choose. If you have adequate personal savings to self-insure, compare the all-in cost of paying future care expenses out of pocket versus paying premiums now. Self-funding keeps your assets invested, but it also exposes them to market risk, ordinary income tax on retirement account withdrawals, capital gains tax, and potentially the Net Investment Income Tax (NIIT)—all at the exact moment you need the money most.

If you have a Health Savings Account, you can use it to pay a portion of qualified traditional LTC insurance premiums tax-free. The statutory, age-based limits for 2026 are:

• Age 40 or younger: $500

• Ages 41–50: $930

• Ages 51–60: $1,860

• Ages 61–70: $4,960

• Ages 71 and older: $6,200

These same limits apply to the itemized deduction for traditional LTC premiums as part of unreimbursed medical expenses exceeding 7.5% of AGI.

If you’re married, explore couple discounts—many carriers offer meaningful premium reductions when both spouses apply together. Also check whether your employer offers group LTC insurance; if so, confirm whether the coverage is portable (meaning you can keep it after you leave the company), because a non-portable policy has limited value as you approach retirement.

▶ 1035 exchange opportunity: If you own a permanent life insurance policy or non-qualified annuity that no longer fits your financial plan, a Section 1035 Exchange can move the cash value into an LTC-eligible product on a tax-free basis. Traditional LTC and annuity-based hybrid products can accept exchanges from both life insurance and annuities; however, life-based hybrid policies and standard life-with-rider products can only accept exchanges originating from other life insurance policies.

Step Five: Vet the Insurer, Not Just the Policy

Long-term care insurance is a promise that may not be tested for 20 or 30 years. That makes the financial strength and reputation of the insurer as important as the policy features.

Review the carrier’s financial strength ratings from agencies like A.M. Best, Moody’s, and Standard & Poor’s. Look at their history of premium rate increases—a carrier that has raised rates aggressively in the past may do so again. Check customer service ratings and claims experience, because the value of the policy is ultimately determined by how it performs when you need it.

Understand any restrictions or exclusions in the policy language. Ask about the process for filing a claim, how benefit determinations are made, and what documentation is required. If you’re comparing multiple quotes, make sure you’re comparing apples to apples—differences in elimination periods, benefit durations, inflation riders, and payment types can make two seemingly similar policies produce vastly different outcomes.

The Conversation Worth Having

Long-term care planning is one of the most consequential financial decisions you’ll make in the years leading up to retirement, and it’s one where the cost of inaction is highest. Waiting too long can mean higher premiums, health-related disqualification, or being forced to self-insure without a plan. The right time to evaluate your options is while you’re healthy, while the premiums are manageable, and while you have the time to choose thoughtfully rather than react under pressure.

No single product is right for everyone. Traditional LTC insurance offers the most comprehensive dedicated coverage. Hybrid policies eliminate the “use it or lose it” concern. Life insurance with an LTC rider preserves legacy planning flexibility. And annuities with LTC riders provide an option for those who can’t qualify for traditional underwriting.

The best choice depends on your health, your assets, your family situation, and your priorities. What matters most is that you have a plan—and that it’s built on real information, not assumptions.

Tad Jakes, CFP®, EA, ECA

Disclaimer: The financial concepts, tax laws, market projections, and strategies referenced in this article reflect current regulations and publicly available data, all of which are subject to change. Financial planning and investment decisions are highly individual and depend on a wide range of personal, financial, and health-related factors. This content is intended for educational purposes only and does not constitute personalized financial, tax, or legal advice. Please consult a qualified financial advisor, tax professional, insurance professional, or legal counsel regarding your specific situation.

Sources

1. Likelihood and Duration of Care.

Johnson, R. W., & Dey, J. (2022). Long-Term Services and Supports for Older Americans. Urban Institute / ASPE Office of Behavioral Health, Disability, and Aging Policy.

2. Industry Care Costs

Genworth and CareScout Survey (2025)