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Long-Term Care Insurance: When & Why It Can Be a Good Investment Idea

It’s a fact. People around the world, including the United States, are living longer. According to the United Nations, the number of seniors aged 60 or older is projected to reach 1.4 billion by 2030 and swell to 2.1 billion by 2050.

As the elderly population increases, the cost for long-term care support services offered through adult day care, nursing home, and assisted living residence is also on the rise. If not accounted for, these long-term care costs can easily wipe out a lifetime of savings.

One option to mitigate the risk of depleting your nest egg is to invest in long-term care (LTC) insurance. Under the right circumstances, LTC insurance can help protect you and your loved ones while helping you navigate your long-term care needs. 

But, is LTC insurance a good option for you?

In the following article, we’ll take a closer look at what LTC insurance is, what it covers, and discuss when and why it can be a good tool that rounds out your financial plan.

What is Long-Term Care Insurance?

Long-term care insurance helps cover the costs associated with long-term care needs, which are services that are not typically covered under regular health insurance. These services may include assistance with daily activities like bathing, dressing, and transportation.

A LTC insurance policy is designed to help individuals cover the costs of care when they have a chronic medical condition, a disability, or a disorder like Alzheimer’s disease. Most policies will reimburse the policyholder for care received in a variety of places, such as:

  • Your home.
  • A nursing home.
  • An assisted living facility.
  • An adult day care center.

The Difference Between Traditional & Hybrid LTC Insurance

There are two types of LTC coverage. The first is traditional, also known as standalone LTC insurance, and the second is hybrid LTC insurance. 

Traditional LTC insurance policies require you to pay a monthly premium for the coverage, which you may or may not actually end up needing. 

Hybrid LTC insurance policies combine coverage for long-term care with whole (permanent) life insurance. If you end up needing long-term care, those costs will come out of your death benefit (the payout to your loved ones under your life insurance policy). If you don’t need long-term care, your death benefit will stay intact. 

While traditional LTC insurance follows a use-it-or-lose-it model, hybrid LTC insurance allows you to retain at least some of what you paid. However, hybrid LTC insurance tends to be more expensive.

What Does LTC Insurance Cover?

It bears repeating that LTC insurance is designed to help offset costs associated with services that are not covered under regular health insurance, Medicare, or Medicaid. Therefore, different policies may limit what conditions are covered. 

For example, it’s not unusual for substance abuse or a war injury to be exempt from coverage. And while they might not stop you from getting coverage, pre-existing conditions such as heart disease or a past cancer diagnosis may not be covered under the policy. 

As a rule of thumb, the policy holder becomes eligible for benefits when they can no longer perform two daily living activities such as bathing, dressing, eating, using the toilet, getting in and out of bed, and managing incontinence — or become cognitively impaired. At that point, premiums typically are waived while you receive benefits.

When Should You Consider Buying Long-Term Care Insurance?

Like any investment, timing counts when deciding to buy LTC insurance. If you purchase LTC insurance when you are too young, you run the risk of paying premiums for a very long time. On the other hand, if you wait too long to buy LTC insurance, you run the risk of either being turned down or paying astronomical premiums that make this type of investment impractical.

That said, most people who buy long-term care insurance do so in their fifties and sixties. In some cases people are now looking to purchase insurance in their late forties.

Keep in mind that the rates you pay for LTC insurance are determined by several factors such as your age, health history, gender, marital status, and the amount of coverage you wish to purchase. 

Also, please keep in mind that prices for the same amount of coverage will vary among insurance companies. That’s why it’s important to compare quotes from different carriers.

Are There Any Tax Benefits to Buying Long-Term Care Insurance?

The short answer is yes. Long-term care insurance can have some tax benefits if you itemize deductions, especially as you age. Federal and some state tax codes let you count part or all long-term care insurance premiums as medical expenses, which are tax deductible if they meet a certain threshold. The limits for premiums you can deduct increase with your age. Check with your tax professional first to be positive of your situation.



2021 Federal Tax Deductible Limits for
Long-Term Care Insurance

Age at the End of the Year
Maximum Deductible Premium
40 and Under
41 to 50
51 to 60
61 to 70
71 and Over

Please Note: Only premiums for tax-qualified long-term care insurance policies count as medical expenses. Such policies must meet certain federal standards and be labeled as tax qualified. Ask your insurance company whether a policy is tax-qualified if you’re not sure.

Things to Consider Before Investing in LTC Insurance

Ultimately, the decision to buy LTC insurance comes down to your risk tolerance, and your comfort level with this type of insurance policy. Like any investment, you should discuss the pros and cons of buying LTC insurance with your financial advisor or accountant.

If you do decide to purchase LTC insurance, you should consider the following:

  • Your overall financial situation.
    While weighing out the cost benefit of purchasing LTC insurance, you will first need to consider your overall financial situation to see if the long-term benefits are a good match. Some people would prefer to sell their second home, or downsize their existing home to help cover the cost associated with growing old. Others may set up a longevity fund to cover not only long-term care, but also all the costs that come from living longer than average. One advantage of self-funding: total flexibility in how you spend your care dollars.  The downside is that it is difficult to accomplish for most people.  You would also purchase LTC insurance as a method of protecting your assets.  If you don’t have a lot of assets, you may want to consider other options.


  • Your ultimate financial goals.
    Understanding your overall financial goals is also an important consideration when weighing out whether or not you should buy LTC insurance. If you put a high value on leaving money behind for loved ones, then purchasing a policy may make sense. If you are content without leaving a legacy, then you might be able to forego this purchase.


  • Your age and health history.
    As discussed earlier, what you pay for a policy is directly tied to your age, health history, gender, marital status, among other factors. The older you are when you buy LTC insurance, the more it will cost. In some cases, some insurers will require that you take a physical exam, or require that they review your medical records, and conduct a telephone interview. In general, traditional policies have more stringent health requirements than hybrid ones, so keep that in mind as you are comparing your options.

  • Insurance companies and coverage.
    When comparing LTC insurance policies, it’s important to compare different carriers and coverage policies. It can also be very helpful to speak with a financial adviser who can put your options in the context of your overall financial plan.

  • Understand the tax implications and know how you are going to pay for the policy.
    In certain situations, you may be able to cover premiums, tax-free, using money from a health care savings account. You can also explore the tax advantages associated with exchanging an existing life insurance policy or annuity for a long-term care policy.  This can be complicated, so speak to your tax professional before making a choice for yourself.

Need Help Deciding Whether or not long-term care insurance is right for you?

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