An Expert's Take on Long-Term Care Insurance: Buy or Not?

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Americans have a good chance of living well into old age these days, which is something to cheer about.

But it also raises serious concerns for those who haven't planned for the possibility of long-term care needs.

And the demand for those needs has never been greater.

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Take a trip back through the history of aging and the numbers are startling. From 2010 to 2020, the number of individuals 65 years and over saw the largest and fastest growth in any decade since 1880 to 1890, reaching 16.8% of the total U.S. population, according to the Census Bureau's The Older Population: 2020 report.

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Projections are that by 2050, the 85-plus age group will number 19 million, making it 24% of older adults and 5% of the total population.

This longevity is wonderful for those who manage to maintain good health in their later years. But an extraordinarily large percentage of people will need some form of long-term care, which could include in-home assistance, community and assisted living or nursing home care.

According to the federal government's Administration for Community Living, someone who turns 65 today has nearly a 70% chance of requiring long-term care at some point during their remaining years.

Unfortunately, long-term care is not covered under Medicare, and too many Americans and their families aren't prepared to pay for that care, which can make a sizable dent in any retiree's assets, possibly leaving little to nothing for the person's heirs.

Just how expensive is long-term care?

As an example, the median cost in the United States for an assisted living facility in 2025 is $ $6,077 a month, according to Genworth and CareScout. A semi-private room in a nursing home is $9,555 a month.

Money disappears fast at those rates.

Options for paying for care

This is why it's crucial to consider long-term care needs when planning your retirement and set aside money to pay for them, just in case.

For a long time, one of the most popular ways to prepare was through a long-term care insurance policy. But those policies had a serious downside because they were a use-it-or-lose-it proposition.

If you actually needed care, the policy was there, helping you avoid raiding the entirety of your savings. But if it turned out you never needed long-term care, then those monthly payments, in a sense, had been for naught.

You or your beneficiaries didn't receive any kind of refund. (In fairness, that's much the way car insurance works; it's there if you need it, but provides no benefit if you don't.)

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Fortunately, there are alternative long-term care insurance options that are more flexible, allowing you to avoid that use-it-or-lose-it approach.

One option is a hybrid life insurance and long-term care insurance policy. With such a policy, if you end up needing long-term care, you can use the death benefit (the money your beneficiaries would have received when you die) to pay for it.

But if you never need long-term care, then your beneficiaries receive the full death benefit payout when you die.

Some policies also offer a cash benefit that allows you to take money out to use at your discretion for expenses other than long-term care.

Another option is to self-fund by setting aside a portion of your savings to be specifically dedicated to paying for long-term care. This could be through a separate retirement account.

With this approach, you don't pay any premiums, and if you don't need to use the money, it will be there for your beneficiaries.

Something else to consider. Let's say you buy a long-term care insurance policy using money from a tax-deferred account, such as an IRA, 401(k) or 403(b). You pay taxes when you withdraw money to pay the premium.

But if you then draw on the policy to pay for long-term care, the portion used to pay for the long-term care is treated as an accelerated benefit and is tax-free.

Putting a plan in place

Each option for addressing long-term care has its own pros and cons. For example, the premiums for a hybrid policy typically will cost more than the premiums for a use-it-or-lose-it policy.

The key is to begin thinking about this early, long before the need arises. A financial professional who works with retirees and near retirees can help you understand the options and assist you in making a decision that meets your needs, goals and budget.

Long-term care is a legitimate concern for anyone in or approaching retirement years, but with the right planning, you can limit the hit to your assets and feel more confident about the future.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Randy Swartwood joined GenWealth Advisory Group as a partner in 2022. He has an MBA from National University in Irvine, Calif. Swartwood’s early career was spent in the related field of health care, and he worked for Fortune 500 organizations for 20 years. He also began a startup operation helping older people qualify for Medicare, Medicaid and related insurance to meet their health care needs.