Long-term care insurance
Also called LTC insurance, LTCI
Insurance that helps pay for extended personal care, at home or in a facility, when someone can no longer handle basic daily activities on their own.
What it means
Long-term care insurance pays for custodial care such as help with bathing, dressing, eating or moving around, whether at home, in assisted living or in a nursing home. Benefits usually begin when the insured needs help with at least two activities of daily living or has severe cognitive impairment, after a waiting period called the elimination period. Policies set a daily or monthly benefit, a benefit period or total pool and may add inflation protection.
This matters because health insurance and Medicare generally do not cover long-term custodial care, and Medicaid covers it only after income and assets are low enough to qualify. Premiums depend heavily on age and health at purchase, and insurers can raise premiums on traditional policies for a whole group with state approval. Hybrid policies combine life insurance or an annuity with long-term care benefits.
Example
Suppose a policy pays $200 a day for up to three years after a 90-day elimination period. That is $73,000 a year, or a total benefit pool of $219,000, with the insured paying the first 90 days of care out of pocket.
How it’s used
- Protecting savings from the cost of extended care
- Planning for care without relying on family
- Middle-income and higher-income retirees weighing self-funding
Strengths and weaknesses
Strengths
- Covers care that Medicare and health insurance generally do not
- Helps preserve savings for a spouse or heirs
- Can widen the choice of care settings
Weaknesses
- Premiums are costly and can rise on traditional policies
- Applicants with health issues may be declined
- Premiums may be wasted if care is never needed
Good to know
- Buying in middle age, usually before health declines, tends to lower premiums and improve the odds of approval.
See it in the data: Medical care prices relative to inflation →
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.