top of page
  • Writer's pictureMark Fonville, CFP®

What is Long-Term Care Insurance And Do You Need It?

Updated: Apr 1, 2022

What is long-term care and do you need it?

People often overlook the cost of healthcare in retirement. While you may be in excellent health when you first retire, it’s essential to plan for additional healthcare costs as you age.

That’s where long-term care insurance comes into plan. Long-term care insurance can be a critical component of your retirement planning.

Since the costs for long-term care continue to climb, you must have a plan to cover these costs in retirement in case you need them.

But, long-term care insurance is not for everyone and many individuals may be better off self-insuring instead of paying expensive premiums.

So, what is long-term care insurance, and do you actually need it? Here’s what you need to know.

What is Long-Term Care (and How Much Does It Cost)?

Long-term care is a specific type of care designed to help people who cannot perform certain routine functions and daily activities like,

  • Eating

  • Dressing

  • Bathing

  • Toileting

  • Continence

  • Transferring themselves (for example, safely moving from the bed to the floor).

Collectively, these tasks are called activities of daily living, or ADLs.

It may seem like an outlier, but the likelihood that you'll need long-term care services as you age is relatively high. The Center for Retirement Research at Boston College found that 1 in 4 people over 65 will have severe long-term care needs. So, what defines “severe”? In this case, researchers identified severe needs as requiring assistance with at least one ADL for more than three years. This could be the case if you begin to develop Alzheimer's disease or another cognitive impairment.

Apart from the odds of needing long-term care being higher than you may have imagined, the care itself isn't cheap. According to Genworth Cost of Care, nursing home care can run about $100,000 a year, and even opting for home care options will only cut your costs by about half.

Long-term care is a considerable risk. You need a plan to help pay for it, especially because the typical retirement health insurance like Medicare and supplemental policies often don't cover long-term care costs. While Medicaid does offer financial support for long-term care, many families must exhaust most of their resources before having a chance to qualify for aid, making it a better option for low-income households.

Understanding Long-Term Care Insurance

Long-term care insurance is one way you can protect yourself from unmanageable long-term care expenses.

Long-term care insurance is a separate insurance policy specifically designed to cover long-term care costs. Policies can be written to cover care in various settings such as in-home, nursing homes, assisted living facilities, a home health aide, or adult daycare. Your finances, desires and living situation will determine the best type for you.

How does long-term care insurance work?

First, you’ll fill out an application. The insurance company will also want to check your medical records and may require an "interview" to get an idea of your health and assess the risk they face by insuring you. Here, they'll determine your eligibility for coverage. Sometimes if you're in poor health or have a pre-existing health condition, you may not qualify for coverage.

If you’re approved, you’ll decide the type and level of coverage you want. Most long-term care policies provide coverage in terms of a daily benefit amount and a lifetime benefit cap (or time period).

For example, you may choose a policy with a $300 daily benefit and a $100,000-lifetime cap. Your policy would cover $300 in costs per day that you required long-term care but would stop paying once it paid out a total of $100,000. The policy may also state the lifetime cap as a number of years rather than a dollar amount— such as a $300 a day policy for 5 years.

Once you have a policy in effect, you're usually eligible to receive benefits when you can't perform at least 2 of 6 activities of daily living. You'll need to notify the insurance company by sending in a form, and you may need a doctor's note or evaluation to verify your condition.

You won’t start receiving your benefit immediately, however. There’s also an elimination period, or waiting period, that must pass after your need arises but before the insurance company starts paying. You get to choose our elimination period when you buy the policy—30, 60, or 90 days. Of course, a policy with a shorter elimination period will have a higher premium.

The cost of a long-term care policy (premium, deductibles, etc.) depends on your age, gender, marital status, coverage amount, and insurance company, but could range from just a few thousand per year to well over $1,000 per month. The sweet spot for buying a policy is usually in your mid-50s to early 60s.

Why Consider A Long-Term Care Policy?

The central benefit of all insurance is giving up a known amount of money today (the premium) to protect yourself from an even greater but unknown loss later. Ltc insurance does the same. Buying a policy may give you more certainty with your retirement savings, and at the same time, provides you with options and flexibility for care.

But purchasing a policy might not just be for your own benefit. It can also alleviate financial and caregiving stress for family members since they will likely be providing home health care services regardless of your ability to cover the costs of that care.

In fact, 63% of caregivers use their own retirement savings to pay for care for their relatives. Your long-term care insurance may very well protect your kids and grandkids from draining their savings.

A long-term care insurance policy can provide you and your loved ones with peace of mind knowing that you have protected your future health.

Should You Self Insure Against Long-Term Care Costs?

One of the biggest problems with long-term care coverage is that the policies are expensive. Even worse, premiums continue to rise.

At Covenant Wealth Advisors, we’ve had dozens of clients receive annual premium rate increase notices from their long-term care insurance providers. Rising premiums can pose a big risk to your cash flow.

That’s why we recommend that you ask the following questions before you purchase a long-term care policy:

  • Do I have enough assets to cover the potential costs of long-term care?

  • Is it better to use the equity in my home to self-insure against long-term care costs?

  • Do I have other assets that I can sell in the event I will need to pay for long-term care costs in the future?

  • Does it make sense to add a long-term care rider to my life insurance policy instead?

The truth is that we’ve advised more clients not to get a long-term care policy than to get one.

But everyone is different and the answer depends on your personal situation.

Make A Plan To Get The Care You Need

Long-term care insurance isn’t the only way to handle the expense of prolonged care, but it’s an excellent area to explore, and you may find that it’s the ideal approach for you.

It’s also just one item to address in retirement. For a quick reference on other key retirement issues, see our checklists here.

Don’t hesitate to contact us with any questions. We’d love to help you get started on developing a comprehensive financial plan for retirement today!


About Mark Fonville, CFP®

Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He advises individuals age 50 plus on retirement income planning, investing, and tax planning strategies for a successful retirement.

He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call.



Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment advisory, financial planning, and tax planning services to individuals. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results.

The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.


Don't Miss Out

Join 8,067+ individuals who receive our retirement insights by email and get a free copy of "Key Issues To Consider Before You Retire."

bottom of page