Long-Term Care Insurance: What Is It and Who Needs It?

Aissa Martell
Written by
Aissa Martell
Icon of a woman
Written by
Aissa Martell
Insurance Writer
Aissa Martell is a licensed insurance producer in the State of New York. She is a creative writer and has been freelance writing for five years. She’s happy to share her knowledge of the insurance industry and its products.
John Leach
Edited by
John Leach
Photo of an Insurify author
Edited by
John Leach
Insurance Content Editor at Insurify
John Leach is an insurance content editor who has worked in print and online. He has years of experience in car and home insurance and strives to make these topics easy to understand for everyone. He has a linguistics degree from UC Santa Barbara.

Updated April 14, 2021

Reading time: 10 minutes

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Why you can trust Insurify

Insurify is America's highest-rated insurance comparison platform. We partner with the nation's top insurance companies and are licensed as an agent in all 50 states. However, the insurance experts writing our content operate independently of our partners, and you can learn more about how we make money by viewing our advertising disclosures. Also check out reviews from over 3,000 satisfied customers, our data methodology, and our editorial standards.

Caring for a chronic illness or disability can require constant attention and nursing.

Paying for medical costs, physical therapy, and personal care to address long-term illnesses can be extremely costly and is not covered by traditional forms of life insurance. This is where a long-term care insurance policy, or LTC insurance, comes in to save the day.

Long-term care insurance policies cover medical expenses related to necessary care over an extended amount of time. Usually, when this occurs, you are not able to live independently due to a physical or mental ailment, such as Alzheimer’s disease.

Medical care covered by long-term care insurance policies includes diagnostic, therapeutic, rehabilitative, preventative, curative services, and personal care. Some long-term care plans are tax-qualified, meaning premium payments qualify for federal income tax deductions. All long-term care policies are guaranteed renewable; the life insurance company cannot eliminate your policy for any reason, including health conditions, as long as the premiums are paid.

Determining whether you should purchase a long-term care policy is a tricky situation. Certainly, if you have a pre-existing condition or a debilitating illness to consider, long-term care policies and riders should be taken seriously. Otherwise, it’s a sufficient way to insure yourself in case of major expenses that would drain anyone’s resources.

There are lots of benefits and options to explore in long-term care policies. Insurify makes it simple to compare quotes from the best long-term care insurance companies to give you peace of mind should you require finances for long-term conditions.

What is long-term care insurance?

Just as life insurance death benefits are contingent on the insured’s death, long-term care insurance policyholders must meet a benefit “trigger.”

The benefit trigger initiates long-term care benefit payments as defined in the policy. Triggers typically include medical necessity, certified by a doctor, and a loss of physical or cognitive ability to perform two or more activities of daily living ( ADLs ). Long-term care insurance counts six ADLs:

  • Bathing

  • Toileting

  • Ability to transfer (such as from a chair to a bed)

  • Dressing

  • Eating

  • Continence

The basic levels of long-term care services covered by long-term care policies are skilled nursing care, intermediate care, and custodial care. Skilled nursing care is usually administered in a nursing home. Care is delivered day and night, 24 hours a day, by licensed medical professionals under the direction of a physician.

Intermediate care is also continuous care but without 24-hour supervision. This care is given by registered nurses and nurse’s aids under the instruction of a doctor. Intermediate care can be provided in nursing homes, community centers, and assisted living facilities and as home care.

Custodial care is the least watchful of all the long-term care levels. It is devised to help individuals with activities of daily living, such as eating and dressing. Care does not have to be administered by a skilled professional, but it must be overseen by a licensed physician. Care can be given just about anywhere the patient resides, including at an adult daycare or at home, administered by a home health aide.

Factors Affecting How Much Long-Term Care Costs

Age is definitely a consideration in long-term care policy underwriting. However, these policies are mainly issued to people between the ages of 40 and 85. As with life insurance, the older you are, the higher the premium for long-term care insurance.

Since long-term care needs are not as certain as passing away, underwriters determine how long you will be able to perform activities of daily living without needing assistance. If you are in your twenties and in good health, you could pay a long time for a benefit you may never use. That’s why older people usually buy these policies.

Long-term care policies have a waiting period before benefits are paid, called an elimination period. There are two types of elimination periods defined by the policy contract: service days and calendar days.

With service days, benefits are not paid until you receive a certain amount of days’ care. With calendar days, you must wait a specific amount of calendar days before receiving benefits. You choose the length of time you would like the policy to cover, the benefit amount, and the elimination period. Take note that the longer the elimination period, the lower the premiums.

Finally, long-term insurance contracts come in two forms: an indemnity contract or a reimbursement contract. Indemnity contracts pay the full benefit amount regardless of the cost of care and may have income consequences. A reimbursement contract pays only for the cost of care and will not exceed the maximum daily benefit.

People who have a family history of cognitive impairment, such as Alzheimer’s, or debilitating genetic diseases may know how medical costs and caregivers can drain your personal finances later in life. Long-term care policies can protect your finances and give family members peace of mind should you need continuous care.

Life Insurance Policies with Long-Term Care

Long-term care coverage is not a standard feature of life insurance policies. In life insurance, a long-term care rider can be added to the policy as a living benefit rider.

All permanent life insurance policies have cash value, which is also called a living benefit because it is meant to be used during your lifetime. You can use cash value in any way you want, including long-term care.

In the case of an LTC rider, as a living benefit rider, some of the policy’s death benefit can be used to finance long-term care. Or, with a rate increase, the death benefit can be separate from the long-term care benefit.

Let’s take a quick look at different types of life insurance policies that may add a long-term care rider:

Universal Life Insurance

Universal life insurance is a permanent form of life insurance, with the unique character of flexibility. You can increase or decrease the policy’s premium and death benefit. Universal life insurance accumulates cash value that is intended to be used while the insured is alive. By adding a long-term care rider to this type of policy, should you suffer from a long-term condition the rider will payout from the death benefit to cover long-term care costs or separately from the death benefit, depending on the type of rider you choose.

Flexibility of a universal life policy is appealing to many because of life changes. An LTC rider will give you more adaptability in case long-term care is necessary. If you are looking for a policy that gives you leverage when going through the ups and downs of life, a universal life policy with an LTC rider is a good choice for you.

Whole Life Insurance

Whole life insurance is the oldest form of permanent life insurance. It has a guaranteed cash value and death benefit. Unlike universal life policies, premium payments and the death benefit are fixed and not flexible. Including a LTC rider to this type of policy will give you the same benefits as with a universal life insurance policy LTC rider, and cash value will not need to be withdrawn for long-term care costs if you choose.

If your primary concern in a life insurance policy is to ensure you will not overwhelm loved ones with financial obligations, a whole life insurance policy with an LTC rider may be right for you. It will give you added protection, should long-term care medical expenses and care arise. In addition your loved ones will know that a caregiver will be present and their time will not be needed continuously.

Term Life Insurance

Term life insurance policies have a time cap. They cover a certain amount of years, and if you pass away within the time frame, the policy pays out to your beneficiaries. If not, the policy terminates without the benefit being paid out. It is less expensive than permanent life insurance and does not build cash value. A long-term care policy rider is not easy to find in the insurance market, but when attained they typically payout on expenses for long-term care, should you suffer from a long-term illness during the period of the contract.

Term insurance policies are less expensive than permanent insurance policies, which makes it a more suitable option in many cases. If affordability is essential for you adding a long-term care rider to a term insurance policy will give you added protection.

Long-Term Care Riders for Life Insurance

To sum up a long-term care rider provides coverage for long-term care expenses, similar to traditional long-term care insurance. Both provide coverage for medical and care options, such as nursing home care, associated with long-term illness for a period of time. An LTC rider’s benefits are paid out when you are diagnosed with a chronic illness, physical or mental. It must be certified by a physician that you cannot perform at least two ADLs for a minimum of 90 days or that due to mental health reasons, your safety is endangered without a caregiver. A long-term care rider gives added security to any type of insurance policy you choose, as the policy alone will not  cover long-term care expenses.

With Insurify, you can compare life insurance prices and premiums from top-of-the-line insurers. You consider the benefit amount that is best for you, and in minutes, Insurify will produce a list of top life insurance companies and the rate of their premiums.

Long-Term Care Insurance vs. Life Insurance

Long-term care insurance and life insurance may seem like comparing apples to oranges, but they are both designed to ease you and your loved ones ’ minds should costly unexpected expenses arise.

Long-term care coverage may seem more like health insurance in the way its insurance benefits cover medical expenses. Qualified health plans, which are policies certified by the marketplace, must cover chronic illness management. Though guidelines vary from state to state, chronic care management typically does not cover the cost of home healthcare or any care that assists with activities of daily living. Because of this, just about anyone can benefit from the added assurance of a long-term care insurance policy.

The alternative of a whole life insurance policy, which grows cash value on a tax-free basis, may be a better option for you if you expect cash value to be significant in later years. This way you can use that cash value to fund long-term care. If not, an LTC rider for a bit more money, which can pay out a portion of your death benefit should the need for long-term care arise, is not a bad idea.

Hybrid Life Insurance and Long-Term Care Policies

A hybrid life insurance policy or hybrid long-term care policy is a policy where the death benefit and the long-term care coverage are interchangeable.

Hybrid policies incorporate LTC with the benefits of life insurance or an annuity. Simply put, the policy pays for long-term care services if needed. If LTC is never required, the benefit is paid out to your beneficiaries as a death benefit upon your passing. You can pay annual premiums with hybrid life insurance, or you can pay one lump-sum premium.

Best Long-Term Care Companies 2020

Though Medicare does include some long-term care coverage later in life, the coverage is limited. Medicare covers the first 100 days of service in a nursing home, but you must have been hospitalized first. Long-term care is usually necessary for longer than 100 days.

Medicaid covers prolonged nursing care costs, but your personal assets must be near the poverty level to meet eligibility. With this in mind, let’s examine the different advantages of LTC policies with some of the best life long-term care insurance companies.

AARP, LTC Insurance

AARP offers long-term care options from New York Life. AARP stands for American Association of Retired Persons, which was founded by Dr. Ethel Percy Andrus in 1958 as the National Retired Teachers Association (NRTA). At that time, life insurance was not outfitted for seniors or retirees. Dr. Andrus searched for insurance coverage that would include older individuals, and when she found one, she created benefits for older Americans.

Now AARP offers LTC insurance through New York Life. New York Life insurance company is the third-largest insurance company in America. It has billions of dollars in assets, which is important for consumers because it has the financial security to pay out benefits.

USAA, LTC Insurance and LTC Riders

USAA stands for United Services Automobile Association and was founded in San Antonio by a group of army officers. Today, USAA offers a variety of products, including life and health insurance and LTC products. USAA provides information on their long-term care products by phone.

Mutual of Omaha, LTC Insurance and LTC Riders

Mutual of Omaha offers LTC insurance policies and an LTC rider to supplement its life insurance policies. Mutual of Omaha is a Fortune 500 company founded in 1909 in Omaha, Nebraska. Long-term care is a fundamental part of their insurance policies, and it also provides an array of financial and insurance products.

State Farm, LTC Insurance and Hybrid Life Insurance

Founded in 1922 by a retired farmer named George J. Mecherle, State Farm was originally a car insurance company. Today, State Farm provides insurance coverage for home, life, and long-term care. Headquartered in Bloomington, Illinois, State Farm has agencies across the U.S. and has a strong financial backing.

Transamerica, LTC Insurance

Headquartered in Baltimore, Maryland, Transamerica provides long-term care insurance at a daily rate of $50–$500 a day. Founded in 1928, it has offices and associated offices throughout the U.S. Additional components of its LTC policies include an elimination period of 0–365 days, spouse/partner shared benefit, and inflation options.

How Much Does Long-Term Care Insurance Cost?

The cost of long-term care can range from $50K to $100K annually. Accordingly, long-term care insurance premiums reflect the high cost of long-term care over an extended amount of time.

Underwriting of LTC policies takes into consideration activities of daily living, which life insurance policies do not. Whether or not a whole life policy is less expensive than an LTC policy depends on underwriting factors, such as the age at which you purchase your policy.

Insurify is a great tool to determine whether a whole life policy that develops cash value or a long-term care policy is the best fit for your budget. Compare quotes with Insurify today!

Long-Term Care and Taxes

Long-term care policies are placed into two categories where taxes are concerned: tax-qualified policies and non-tax-qualified policies.

A qualified long-term care policy meets Health Insurance Portability and Accountability Act (HIPAA) guidelines. These policies receive favorable tax treatment. Premium payments are deemed a qualified medical expense and can be deducted from federal income tax. The amount of long-term care insurance premiums that can be deducted is determined by the limits based on your age.

Non-qualified long-term care insurance policy premiums can not be deducted from federal taxes. Long-term care policies that pay a set amount regardless of the price of the service or exceed the federal daily benefit cap may be subject to income taxation.

Frequently Asked Questions

  • Long-term care insurance was created to cover care that is necessary for an extended amount of time. LTC insurance is unique in its design to cover skilled nursing care and services for activities of daily living.

  • Long-term care insurance costs an average of $2,700 a year, according to LifePLans. Premiums are subject to underwriting, and how much your policy costs depends on the age you purchase your policy and the amount of coverage you would like.

  • There are lots of advantages of LTC insurance. AARP, Transamerica, and State Farm offer stand-alone long-term care policies whereas USAA and Mutual of Omaha provide LTC riders. Which works best for you, policy or rider depends on your own circumstances. Use Insurify to help determine which long-term care insurance is best for you.

  • Tax-qualified LTC insurance policy is one that meets HIPAA regulations and is granted favorable tax treatment. Policy premiums, subject to limits, may be deducted from federal taxes.

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Aissa Martell
Written by
Aissa Martell

Insurance Writer

Aissa Martell is a licensed insurance producer in the State of New York. She is a creative writer and has been freelance writing for five years. She’s happy to share her knowledge of the insurance industry and its products.

Learn More
John Leach
Edited by
John Leach

Insurance Content Editor at Insurify

Photo of an Insurify author
Edited by
John Leach
Insurance Content Editor at Insurify
John Leach is an insurance content editor who has worked in print and online. He has years of experience in car and home insurance and strives to make these topics easy to understand for everyone. He has a linguistics degree from UC Santa Barbara.