Long-Term Care Insurance: How It Works and the Terms That Decide It
It pays toward help with daily living, the gap Medicare leaves. Here is how policies work, what drives the cost, and the alternatives.
By naveen · Updated · How we research our guides
What to know
- Long-term care insurance pays toward help with daily living, such as bathing, dressing and eating, at home or in a facility.
- That's the gap Medicare leaves: "Medicare doesn't pay for long-term care."
- Whether a policy ever pays depends on its terms, including the benefit trigger, the elimination period and the benefit limits.
- Whether a policy makes sense is your parent's decision, ideally with an adviser who isn't paid to sell one.
- Retirement Checklist puts long-term care questions in order with Medicaid and the legal documents.
Long-term care insurance pays a daily amount, up to a limit, toward help with daily living such as bathing, dressing and eating, at home or in a facility, once the policy's benefit trigger is met (ACL LongTermCare.gov). That's the gap Medicare leaves: in its own words, "Medicare doesn't pay for long-term care." Whether a policy makes sense is your parent's decision, ideally with a planner who isn't paid to sell one.
We don't recommend insurers, policies or products, and we don't take money from anyone who sells them. Nothing here is a recommendation to buy or not to buy.
What gap does long-term care insurance fill?
It fills the gap left by Medicare and health insurance, which don't pay for long-term custodial care. Medicare.gov says that "Since most long-term care is non-medical, Medicare and most health insurance" don't pay for it, whether "in a nursing home or in the community" (Medicare.gov). Medicare covers skilled nursing only for a short stay after a hospital admission.
ACL's LongTermCare.gov lists the other ways to pay: your own income and savings, "and possibly the equity in your home," Medicaid for people who qualify, and private options such as insurance (ACL). Knowing the first two exist is part of judging the third fairly.
Which policy terms decide whether it ever pays?
The benefit trigger, the elimination period and the benefit limits decide whether and how much a policy pays. The headline numbers (a daily benefit, a total pool) are only part of it:
| Term | What it means | Why it matters |
|---|---|---|
| Benefit triggers | What must be true before it pays; ACL lists the most common as needing help with two or more activities of daily living, or a cognitive impairment | Two policies with identical benefits can behave differently |
| Elimination period | A waiting period at the start, when care is received but the policy doesn't pay | Texas's insurance department says "Policies with longer elimination periods have lower rates" |
| Benefit amount & period | The maximum per day, and the maximum number of days or years | Together they set the lifetime maximum the policy will pay |
| Inflation protection | An optional benefit that grows over time | It adds to the price, and it "raises your benefits to help cover the higher cost of services" (Texas Department of Insurance) |
| Where care is covered | Home, community settings, or a facility | Check the policy for each setting |
| Rate increases | Whether the premium can rise later | Washington's regulator calls premium increases a nationwide trend |
For a federally tax-qualified policy, the IRS definition of a chronically ill person is someone unable to perform "at least two activities of daily living without substantial assistance from another individual for at least 90 days," or who needs substantial supervision because of severe cognitive impairment (IRS Publication 502).
ACL's glossary defines the elimination period as a "Specified amount of time at the beginning of a disability during which you receive covered services, but the policy does not pay benefits" (ACL glossary). Connecticut's Insurance Department says policies include an elimination period "from 0 to 180 days before benefits begin," and notes that the cost of long-term care "is rising faster than the rate of inflation" (Connecticut Insurance Department).
What drives the cost?
ACL lists what sets the price of a policy: "How old you are when you buy the policy," the maximum it pays per day, the maximum number of days or years it pays, and optional benefits such as inflation protection (ACL). Health matters too: ACL notes that "most individual policies require medical underwriting," so poor health can mean a refusal, limited coverage, or a higher "non-standard" rate.
- Age at purchase: "The younger you are, the lower your rates will be" (Texas Department of Insurance).
- Health: underwriting can raise the price or lead to a refusal.
- Benefit size and length: the daily maximum times the number of days sets the lifetime maximum.
- Elimination period: "You can lower your premium by choosing a longer elimination period," though you pay out of pocket for longer (Texas Department of Insurance).
- Inflation protection: optional, and priced as an added benefit.
- Policy type: Washington's regulator says long-term care coverage can be added to some life insurance or annuity policies, and that accelerated death benefits don't qualify as long-term care insurance there.
We don't print premium averages, because a national average hides the ranges that matter. Some state regulators publish rate information instead: California's Department of Insurance, for example, publishes sample rates and a premium history for each company selling long-term care insurance in the state (California Department of Insurance). The cost of care itself "depends on the type and duration of care you need, the provider you use, and where you live" (ACL).
What are the drawbacks?
The drawbacks regulators point to are price, premium increases after purchase, underwriting, and benefit limits:
- Price rises with age at purchase, according to the Texas Department of Insurance.
- Premiums can rise after purchase. Washington's regulator says that "Long-term care premium increases are not just a trend in our state; they're a nationwide trend" (Washington OIC).
- Underwriting means coverage may be unavailable or costly in poor health.
- Policies have limits: ACL notes that "Many long-term care insurance policies have limits on how long or how much they will pay."
- Coverage depends on contract terms. Connecticut's regulator tells policyholders facing a denied claim to review the policy's elimination period, activities-of-daily-living rules and pre-existing condition provisions.
What are the alternatives?
ACL lists several ways to pay besides a traditional policy, and they can be combined:
- Self-funding from income, savings, and possibly home equity (ACL), including reverse mortgages, annuities and trusts.
- Life insurance options, including policies that add long-term care coverage, structured differently from traditional coverage.
- Medicaid for people who qualify, with rules, including a 60-month look-back on asset transfers, that make early understanding important.
- Veterans' benefits, where a parent served: the VA "pays for long-term care services for service-related disabilities and for certain other eligible veterans" (ACL).
- Family care, where relatives are able to provide it.
Why does timing matter for long-term care insurance?
Timing matters because price and eligibility both depend on age and health at application. Texas's insurance department says "The younger you are, the lower your rates will be," and ACL notes that someone in poor health or already receiving long-term care "may not qualify for long-term care insurance," so the product gets harder and dearer to obtain as the need becomes more likely. That's a fact about how the market works, not a reason to rush into a purchase.
What questions are worth asking?
- What would care cost where your parent lives, for one year and for five?
- Precisely what triggers payment under this policy, in its own words?
- Does it cover care at home, on the same terms as a facility?
- Can the premium rise, and what is this insurer's history?
- What happens if a premium is ever missed?
- Who is advising, and how are they paid?
A fee-only financial planner, paid by your parents rather than by commission, and an elder law attorney in their state are the two categories of professional who can weigh this against the rest of their finances. Each state's State Health Insurance Assistance Program (SHIP) offers volunteers who "help consumers understand various types of insurance for older persons" (ACL). We name categories, never firms.
Frequently asked questions
What does long-term care insurance cover?
Help with daily living rather than medical treatment: ACL says it covers "personal and custodial care in a variety of settings such as your home, a community organization, or other facility." Policies pay a daily amount up to a set limit for help with activities such as bathing, dressing or eating. Health insurance, by contrast, covers treatment.
Doesn't Medicare cover long-term care?
No. In Medicare's own words, "Medicare doesn't pay for long-term care." It covers medical care and a short skilled nursing stay of up to 100 days per benefit period after a qualifying hospital stay, not the extended day-to-day help with dressing and bathing that long-term care means. That gap is why this kind of insurance exists.
What is the biggest drawback of long-term care insurance?
There isn't one universal answer. The drawbacks regulators and ACL point to are price, which rises with age at purchase; premium increases after purchase, which Washington's regulator calls a nationwide trend; underwriting, which can mean a higher price or a refusal; and limits on how long or how much a policy pays.
How much does long-term care insurance cost?
It depends on age at purchase, the daily benefit, how many days or years it pays, the elimination period, inflation protection, health at application, and the policy type. Some state insurance departments publish sample rates and insurers' premium histories, as California's does. Illustrations from more than one source, read clause by clause, show a real number.
Is it wise to buy long-term care insurance?
It depends on your parent's age, health, savings, income, family situation and appetite for risk, and it's a decision for them, ideally with a fee-only financial planner who isn't paid a commission on the policy. We name what the decision turns on; we don't make it.
What is an elimination period?
A waiting period at the start of a claim during which care is received but the policy doesn't pay, so costs are paid out of pocket. Connecticut's insurance department says they run from 0 to 180 days, and Texas's says a longer one lowers the premium but means paying out of pocket for longer.
Can premiums go up after you buy?
Yes. Texas's insurance department explains that, in Texas, companies "can raise your rates, but only if they raise rates for everyone with the same policy," and Washington's regulator calls increases a nationwide trend. ACL suggests requesting "information on the company's premium rate history" before buying. Ask how any specific policy handles increases.
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Related guides
Sources
- Medicare.gov, Long-term care coverage: Medicare's own statement that it doesn't pay for long-term care.
- ACL LongTermCare.gov, What is long-term care insurance?: How policies pay, what sets the price, underwriting, limits and premium increases.
- ACL LongTermCare.gov, Who pays for long-term care?: Public programs and private payment options.
- ACL LongTermCare.gov, Paying privately: Income, savings, home equity, reverse mortgages, annuities and trusts.
- ACL LongTermCare.gov, Glossary: Definitions of benefit triggers and the elimination period.
- ACL LongTermCare.gov, Costs of care: What the cost of care depends on.
- ACL LongTermCare.gov, Veterans Affairs benefits: VA payment for long-term care.
- IRS Publication 502: The definition of a chronically ill individual for qualified long-term care insurance.
- Washington Office of the Insurance Commissioner, Long-term care insurance rate increases: Why premiums have risen and options when they do.
- Washington Office of the Insurance Commissioner, What qualifies as long-term care insurance: Activities of daily living, and life insurance riders.
- Connecticut Insurance Department, Long-term care insurance: Elimination periods, rate increases, and what to check after a denied claim.
- Texas Department of Insurance, Long-term care insurance guide: How age, health, the elimination period and benefits affect rates, and how rate increases work.
- California Department of Insurance, Long-term care: Published sample rates and premium histories.
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