Note: This article has been reviewed by Head of Advisory Services Logan DeGraeve, CFP® .
Is Long-Term Care Insurance Worth It? Closing the Retirement Income Gap
Key Points – Is Long-Term Care Insurance Worth It? Closing the Retirement Income Gap
- Long-term care is an income problem, not an asset problem: it’s about which asset gets liquidated first.
- About 70% of people over 65 will need long-term care, and most assume they won’t.
- Medicare covers short-term rehab only; Medicaid requires spending down most assets first.
- Three ways to cover the risk: self-funding, traditional insurance, or asset-based hybrid policies.
- A written plan of care matters as much as funding: decide who supervises care in advance.
- 12-Minute Read
Many people walk into retirement with an answer for the market. They have a view on inflation, a tax strategy built around Social Security timing and Roth conversions, and a sense of how their portfolio is positioned for a downturn. Ask that same person how they would cover an extra $70,000 or more in annual expenses, arriving with no warning and lasting five to 10 years, and the conversation usually stops.
That scenario is one that may involve the consideration of long-term care insurance. We’re not just talking about “can I afford care” in the abstract. Where does the money come from, in what order, and what does the cost mean for the rest of the plan if a care event shows up?
Whether long-term care insurance is worth it is not a yes-or-no question with one right answer for everyone. It depends on assets, health, family circumstances, and how the rest of a household’s retirement income plan is built. What follows is a framework for making that decision deliberately: what the real odds look like, what Medicare and Medicaid do and do not cover, what care actually costs, and the three broad ways to cover the risk, so the choice gets made on purpose rather than by default.
Is Long-Term Care Insurance Worth It? The Odds Nobody Plans for
Someone turning 65 today has close to a 70% chance of needing some form of long-term care during their lifetime, according to the U.S. Administration for Community Living.1 The ACL also reports that roughly one in five will need that care for longer than five years. The planning failure isn’t that people ignore these numbers. It’s that most people, quietly and without ever examining the assumption, plan as though they’ll land in the other 30%.
Part of what drives those odds is demographic. The Alzheimer’s Association estimates that 7.4 million Americans age 65 and older are living with Alzheimer’s disease in 2026.2 That figure is projected to approach 13 million by 2050 as the population ages. Alzheimer’s and related dementias are also among the conditions most likely to require years, not weeks, of sustained care.
None of this is meant to be alarming for its own sake. It’s meant to reset the starting assumption. A retirement income plan built on the odds of not needing care is a plan built around the minority outcome. It’s worth asking, honestly, whether that’s an intentional choice or just an unexamined one.
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Long-Term Care Is an Income Problem, Not an Asset Problem
Here’s the reframe that gets missed when long-term care is treated as an insurance purchase instead of a planning decision. It isn’t primarily a question about assets. It’s a question about income.
Picture a retiree at 65 living comfortably on $100,000 a year from a combination of Social Security, portfolio withdrawals, and maybe a pension. That number funds a full life for 15 years. Then, at 80, a care event arrives. The diagnosis requires memory care. Then, a fall leads to skilled nursing and a chronic condition that needs daily assistance. The household’s spending needs jump by $70,000 a year or more, for an uncertain number of years.
The real question isn’t whether the money exists somewhere in the plan. For some people, it may be sitting in a taxable brokerage account, an IRA, or home equity. The real question is which asset gets liquidated first, in what tax bracket, and at what point in the market cycle. Selling appreciated stock during a down year or pulling an outsized IRA distribution that pushes a household into a higher bracket and triggers higher Medicare premiums along the way can potentially do more damage to a retirement plan than the cost of care itself.
This is why long-term care planning belongs inside retirement income planning, not off to the side of it. It connects directly to sequence-of-returns risk, tax bracket management, and the order in which accounts get spent down in retirement. Treating it as a separate decision, to be figured out later, could turn a manageable event into a plan-altering one. If there’s no plan for how a care event gets funded, the household’s money becomes the plan by default, in whatever order and at whatever tax cost the moment happens to dictate.
Will Medicare Cover Long-Term Care?
This is one of the most persistent misunderstandings in retirement planning. It’s important to be direct about it. Medicare was not built to pay for long-term care.
Under Original Medicare, skilled nursing facility care generally requires a qualifying inpatient hospital stay of at least three consecutive days, along with satisfaction of other Medicare eligibility requirements. Medicare generally does not cover ongoing custodial assistance, such as help with dressing, bathing, or other activities of daily living, when that is the only care needed.
For individuals who qualify, Original Medicare generally provides skilled nursing facility coverage for up to 100 days per benefit period, subject to applicable eligibility requirements and cost sharing. Continued coverage depends on whether the individual continues to require qualifying skilled care and is not necessarily dependent on continued measurable improvement.
In general, Medicare’s skilled nursing facility benefit is intended to cover qualifying skilled nursing and rehabilitation services for a limited period. Medicare generally does not cover long-term custodial care when that is the only care an individual needs.
What About Medicaid?
Medicaid does cover long-term care, including facility-based care, but only after a means-tested spend-down of countable assets. Eligibility rules vary by state and generally require depleting most non-exempt assets first. Spousal impoverishment protections exist to shield some assets for a healthy spouse who remains at home, but those protections may be narrower than people assume. The loss of control over which facility will accept a Medicaid resident is a real, practical constraint that catches families off guard.
Between the two programs sits a gap that many households don’t discover until they’re living inside it. That gap is a multi-year stretch of care that neither Medicare, nor Medicaid until assets are largely spent down, will pay for. Closing that gap, deliberately and in advance, is what the rest of this framework is built to help with.
Did You Catch Our Speaker Series on Long-Term Care?
Along with addressing it in this article, we want to thank Alecia Barnette, who is the senior vice president for the care planning division of Financial Independence Group, for addressing it with Head of Advisory Services Logan DeGraeve, CFP® during our Speaker Series event, The Great Income Gap: Understanding Long-Term Care.
Modern Wealth Speaker Series Playlist
What Long-Term Care Actually Costs
National costs vary by care setting and by region, but current medians give a useful sense of scale. According to CareScout’s 2025 Cost of Care Survey data:3
- A private room in a nursing home runs a national median of roughly $10,800 a month
- Assisted living communities run roughly $6,200 a month
- In-home non-medical care runs roughly $6,700 a month at typical hours of care
Costs shift meaningfully by state and by metro area around these national figures. They have historically climbed faster than general inflation, which matters for anyone modeling a care need that might not arrive for another decade or two.
Rather than reproducing a cost table that will be out of date within a year, consider bookmarking the free cost-of-care lookup tool at LongTermCare.gov, the federal government’s long-term care planning resource, which keeps current, location-specific figures. A related look at how these costs interact with the rest of a retirement budget is available in our guide to health care costs in retirement.
The number that matters most for planning purposes isn’t any single monthly figure. It’s the multi-year total. At $6,700 to $10,800 a month, a five-year care need can run anywhere from roughly $400,000 to well over $600,000, arriving on top of, not instead of, a household’s existing retirement spending.
Is Long-Term Care Insurance Worth It?Three Ways to Cover the Risk
Once the odds and the cost are on the table, the decision comes down to three broad approaches. None of the three is universally right. Each trades cost, flexibility, and certainty differently, and the right one depends on the household.
Self-Funding
Self-funding means treating existing assets as the long-term care plan: no policy, no premium, and the household carries the full cost and the full risk if a care event occurs. For a household with substantial investable assets relative to potential care costs, this can be a rational, deliberate choice rather than a default by omission.
The tradeoff is that self-funding puts market risk, tax sequencing, and the health of the rest of the plan on the line at exactly the moment those things are hardest to manage. The real question isn’t “do I have enough money somewhere.” It’s “which asset am I willing to liquidate first, and what does that decision do to everything else I’ve built.” A household that has never answered that question hasn’t chosen to self-fund. It’s simply left the decision to whatever happens at the time.
Traditional Long-Term Care Insurance
Traditional long-term care insurance works like renting coverage. Premiums are generally a low-cost way into the risk pool, but the policy comes with two well-known tradeoffs: premiums are not fixed and can rise over the life of the policy, and if long-term care is never needed, no benefit is paid and no premium is returned.
For households evaluating this path, it’s worth exploring the range of policy structures currently available, including newer designs intended to address some of the premium volatility associated with older-generation policies, and comparing them against the alternatives below before settling on an approach.
Asset-Based and Hybrid Policies
Asset-based, or hybrid, long-term care policies work differently. They combine a long-term care benefit with a life insurance policy or an annuity, so the household owns the coverage rather than renting it. Structured this way, a policy generally provides value under more than one outcome. The policyholder uses the benefit for care, doesn’t use it and a death benefit passes to heirs, or in some designs, surrenders the policy and receives value back.
That use-it-don’t-use-it-or-leave-it structure is the core appeal of hybrid coverage. It’s one factor that has contributed to growing interest in these policies within the long-term care insurance market. The tradeoff is generally a larger upfront commitment of capital compared with a traditional policy’s ongoing premium. That’s where the funding conversation below becomes relevant.
Rent versus own is a useful shorthand for the choice between traditional and hybrid coverage, but it’s a shorthand, not a substitute for running the numbers against a specific household’s assets, health, and goals. The right answer depends on specifics that a framework like this one can’t resolve on its own. It’s often a combination rather than a single choice.
Health history matters in both paths, but not always in the way people expect. Underwriting varies widely by carrier and by product, and it’s often more flexible on hybrid, asset-based solutions than on traditional standalone policies. A health condition that limits options with one carrier may not disqualify a household from another, which is part of why this is worth exploring with a professional rather than assuming coverage is off the table. Timing matters too. Coverage generally costs less while a person is younger and in better health. Waiting for a more convenient moment tends to be the more expensive choice, not the safer one.
Is Long-Term Care Insurance Worth It? Four Ways People Fund a Plan
For households that decide some form of insurance or hybrid coverage makes sense, the funding source matters nearly as much as the vehicle itself. These four approaches may come up in planning conversations.
1. Repositioning Existing Assets
A non-qualified annuity or an older life insurance policy that’s no longer serving its original purpose can sometimes be moved into a long-term-care-focused product through a 1035 exchange, without triggering current taxation on the transfer itself. Whether this makes sense depends entirely on the specifics of the existing contract and should be evaluated contract by contract, not assumed.
2. Idle Cash
Cash and cash-equivalent holdings sitting outside a specific spending or investment purpose are sometimes a source of premium funding, particularly for a single-premium hybrid policy, since that cash is often earning a modest return relative to the risk it could otherwise be positioned to offset.
3. Qualified Account Distributions
For households already taking Required Minimum Distributions, or planning ahead for the years when they will be, some or all of a distribution can be directed toward long-term care coverage over a period of years, rather than spent elsewhere or simply reinvested. This conversation intersects directly with Roth conversion sequencing and tax bracket management. The right approach depends on a household’s full tax picture, not a general rule of thumb.
4. Ongoing Income
For households still working, or with income that comfortably exceeds spending, funding coverage as an ongoing line item, similar to any other insurance premium, keeps the decision separate from asset liquidation entirely and spreads the cost over time.
Each of these is a planning conversation, not a product transaction. The right funding source depends on the shape of a household’s balance sheet as much as on which type of coverage it ultimately chooses. The two decisions, what to buy and how to pay for it, are worth working through together rather than in sequence.
Is Long-Term Care Insurance Worth It? Where This Fits in Your Financial Plan
Long-term care planning doesn’t sit off to the side of a retirement income plan. It’s one input into it, alongside RMD timing, Roth conversion sequencing, and legacy goals. A policy purchased in isolation, without regard for how its premiums or funding source interact with the rest of the tax picture, can create nearly as many problems as it solves.
There’s also a piece of this that has nothing to do with insurance or investments. That’s deciding, in advance and in writing, who supervises care if it’s ever needed. A written plan of care can address:
- Who coordinates with providers
- Who manages the day-to-day logistics
- And who makes decisions if the person receiving care no longer can
Having a written plan of care can help family members from being forced into those roles under pressure. Supervising care and providing care are different jobs. Many families may be better served by keeping them distinct rather than assuming a spouse or adult child will simply absorb both roles when the time comes.
Frequently Asked Questions Related to Is Long-Term Care Insurance Worth It?
Q: What Is the Best Way to Pay for Long-Term Care?
There’s no single best way. It depends on assets, health, and how the rest of a retirement income plan is built. Households may end up using some combination of self-funding, insurance, and repositioned assets rather than relying on one method alone, which is why this works best as an advisor conversation rather than a generic answer.
Q: Can I Self-Insure Long-Term Care Instead of Buying a Policy?
Self-funding, using existing assets to cover a potential care need, can be a reasonable choice for households with substantial investable assets relative to likely care costs. The tradeoff is that the household carries the full cost and timing risk if a care event occurs, which can affect the rest of the retirement plan. Whether it makes sense depends on the size of the asset base and how much of that risk a household wants to carry itself.
Q: What Are the Alternatives to Traditional Long-Term Care Insurance?
Beyond a traditional standalone policy, options include asset-based or hybrid policies that combine a life insurance policy or an annuity with a long-term care benefit, riders added to life insurance a household already owns, and self-funding from existing assets. The right alternative depends on health, existing assets, and how much flexibility a household wants if care is never needed.
Q: Does a Health Condition Disqualify Me from Long-Term Care Coverage?
Not necessarily. Underwriting standards vary by carrier and by product, and asset-based or hybrid solutions are often more flexible than traditional standalone policies. A condition that limits options with one carrier may not be a barrier with another. Consider reviewing specific health history with a financial professional rather than assuming coverage isn’t available.
Q: Is There an Age Limit for Buying Long-Term Care Coverage?
Coverage is generally available well into a policyholder’s later years, though the exact limit varies by product and carrier. Coverage tends to cost less when purchased earlier, while health is typically better and pricing more favorable. Waiting for a more convenient moment generally means paying more, not less.
Q: Can I Use HSA Funds to Help Pay for Long-Term Care Coverage?
In some cases, a portion of the premium tied to the long-term care benefit on certain policies may be eligible for HSA funds, subject to age-based IRS limits. This is a tax question specific to each household’s HSA and policy structure. Make sure to confirm with a tax professional before relying on it as a funding source.
So, Is Long-Term Care Insurance Worth It?
The honest answer is that it depends on several different factors. Variables include assets, health, family circumstances, and how the rest of a household’s retirement income plan is built. That dependency is exactly why long-term care coverage is a planning decision and not a product purchase. It deserves the same deliberate treatment as any other major decision in a retirement income plan.
A note on process, not product: when a care event does happen, the hardest part typically isn’t the paperwork alone. It’s making decisions under stress. Some hybrid and traditional policies may include claims support designed to help a family navigate the claims process when the time comes. When available, that support can be a meaningful part of what the coverage provides beyond the financial benefits themselves.
Get Your Modern Confidence Score
The place to start isn’t a policy illustration. It’s an honest, current look at where a household stands relative to its overall retirement income plan. The Modern Confidence Score is a low-friction way to get that starting point. It assesses your confidence level on a scale of 1 to 5, not just when it comes to long-term care planning and insurance planning as a whole, but taxes, investments, and estate planning. This will help our team better understand how confident you are in your finances so that we can determine how to help you enjoy today with confidence for tomorrow.
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Resources Mentioned in This Article
[1] https://acl.gov/ltc/basic-needs/how-much-care-will-you-need
[2] https://www.alz.org/getmedia/ef8f48f9-ad36-48ea-87f9-b74034635c1e/alzheimers-facts-and-figures.pdf
[3] https://www.carescout.com/cost-of-care
Investment advisory services offered through Modern Wealth Management, LLC, a registered investment adviser.
The views expressed represent the opinion of Modern Wealth Management, LLC, a registered investment adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.
This article is for general educational purposes only and does not constitute financial, tax, legal, or insurance advice. It is not an offer or recommendation to purchase any specific insurance product. Long-term care insurance, including traditional and asset-based or hybrid policies, involves fees, expenses, surrender charges, and underwriting requirements, and is subject to the terms, conditions, and limitations of the issuing insurance company and the specific policy purchased. Material risks and limitations, such as underwriting requirements and risks, policy exclusions, upfront costs, surrender charges, product complexity, and the potential financial impact of premium increases, may apply. Some policies may allow tax-advantaged access to benefits for qualifying long-term care expenses under federal law. Consult a qualified tax professional about your specific situation. Speak with a licensed insurance professional and your financial advisor before making any long-term care insurance decision.
Medicare eligibility, coverage, costs, and benefit requirements are subject to applicable Medicare rules and may vary based on an individual’s circumstances and type of Medicare coverage. Medicare rules may change. Individuals should consult Medicare.gov or their Medicare plan regarding their specific coverage and eligibility.