United States: Long Term Care Insurance: Who Needs It?

Last Updated: July 22 2016
Article by Kelly Morris

A companion personal story to this article can be found here. It shares the personal account of one of BNN's own who experienced first-hand the difficulties associated with caring for a family member who requires significant care, but has no longer-term care insurance. Nothing can be done to eliminate the emotional cost and heartache placed on caregivers and family, but financial costs can be managed if addressed in advance, and this story hopefully will encourage readers to protect themselves (and their loved ones) financially with long term care insurance if at all possible.

The United States life expectancy has increased drastically over the last 100 years. Living longer comes with a myriad of benefits, but it also means handling the physical and health difficulties that accompany an extended period of aging. Many Americans—particularly the baby boomer generation—are reaching retirement and beyond, only to realize they are in need of long-term care.

Long-term care comprises a host of services, ranging from home care or adult day care to residential care in an assisted care facility. More specifically, long-term care is defined as services which provide assistance with activities of daily living ("ADLs"), such as eating, dressing, or bathing. One qualifies for long-term care when a doctor or other health professional certifies that he or she is unable to perform at least two ADLs without assistance. The costs of long-term care can be overwhelming and unaffordable for many, inviting the question: "how do I pay for long-term care?" Long-term care insurance ("LTCI"), unlike health insurance, is designed to help cover the costs of long-term care services and supports.

Why is LTC Insurance So Important?

The baby boomer generation, U.S. adults born between 1946 and 1964, totals 70 million people. The oldest of the baby boomers are less than a decade from reaching their 80s, the age at which many will begin needing assistance with daily activities. The Administration on Aging estimates that almost 70% of people turning 65 will need long-term care at some point in their lives. Applying this statistic to the baby boomer generation yields almost 50 million people from that generation in need of long-term care. It is estimated that 12 million Americans over the age of 65 will need long-term care by 2020. Yet, there are currently only about 8 million people across all age groups who have some kind of LTCI.

Long-term care is expensive. According to Genworth Financial, the cost of a room in a private nursing home cost is $92,378 for 2016. A home health aide averaged $46,332 for the year. Full time, round the clock, care can cost over $170,000 per year. The actual cost of care is affected by a number of factors, such as the time of day aide is utilized, extra charges for additional services beyond the cost of basic room and board at care facilities, and the area in which the patient lives. The staggering cost of care can be a huge pill to swallow (no pun intended) for many families.

Contrary to popular belief, health insurance and Medicare do not cover the cost of long-term care, because LTC is not considered to be a medical expense. Medicare will cover skilled nursing care and therapy after a hospital stay, but three quarters of people needing long-term care are not hospitalized prior to seeking care.

Considerations in Choosing LTCI

There are a number of options for paying for long-term care (e.g., health savings accounts, life insurance with an LTCI rider, or hoping to remain young and healthy forever). Some of these options are clearly more viable than others. This article focuses on LTCI alone.

Who should consider LTCI?

Relatively wealthy individuals may be able to pay for care out of pocket without the need for LTCI, and probably prefer to do so. On the opposite end of the spectrum, Medicaid will cover care for those who have exhausted all other resources and meet the government's eligibility requirements. However, most Americans needing long-term care fall between these two extremes and should consider LTCI as a method to pay for needed care.

Deterrents to Purchasing LTCI

Unfortunately, as expensive as long-term care is, LTCI premiums can be just as cost-prohibitive. The premiums for a couple in their mid-50s can cost over $3,000 annually. Additionally, the LTCI industry is not heavily regulated, meaning that the cost of the premiums can increase by as much as 40 percent, as frequently as once a year, with no warning.

The second large deterrent that worries most consumers is the "use it or lose it" nature of these policies. One may invest tens, if not hundreds of thousands, into these policies over the years. If the policyholder never needs long-term care, there is no reimbursement for premiums paid in.

You may find it hard to pay the large expense and take the risk on a policy that you may never use. However, recent studies suggest that two out of three adults approaching retirement will need long-term care at some point in the future. In comparison, the risk of being in a car accident or losing a home to fire is more like one in four. Despite lower risk, you would not consider driving your car or living in your house without insurance on both.

You should also consider the reality of your long-term care needs. While family members may be able to provide some caregiving services, a family caregiver may be hindered by distance, lack of technical expertise, or inadequate health or strength (e.g., older spousal caregivers). Hiring a home care aide or moving into a skilled nursing facility may be the only way to ensure that you receive the care that you need.

Money-Saving Tips

  1. Make sure you can afford to keep up with the premiums, now and in the future. Keep in mind that premium increases can be steep. If you find yourself unable to pay the premiums, even after holding the policy for ten years, you may have to forfeit the policy and lose the benefits for which you have already paid. However, some states, including Maine, New Hampshire, and Massachusetts, require policies to have a nonforfeiture benefit or option, which allows you to receive reduced benefits based on the premiums you have already paid.
  2. Buy young. It costs less to buy coverage when you are younger. Currently, the average age of consumers purchasing LTCI is about 60 years old.
  3. Do not buy too little, and do not buy more than you think you will need. Many insurance companies offer online calculators to help you estimate your needs. Look for one that allows you to specify your home state. Most LTCI policyholders receive benefits for less than five years, so keep in mind that your policy does not have to cover ten or fifteen years of long-term care. When in doubt, just remember that you can usually decrease your coverage, but it is much more difficult to increase your coverage (especially if you are no longer healthy).
  4. Read your policy carefully, and make sure you buy one that covers the types of facilities, programs, and services that you want. It is also important to know what the policy's "benefit triggers" are, meaning the conditions which need to occur in order for you to qualify to receive your benefits.
  5. Shop around and research your options. Consider a joint policy with your spouse, as such policies often offer flexibility in allocating benefits and cost savings.
  6. Make sure your policy includes inflation protection. This adds to your premiums, but ensures that your benefits grow alongside inflation.

Tax Considerations

When considering the tax rules related to your LTCI policy, you must first determine whether the policy is qualified or non-qualified. The requirements for a qualified LTCI policy are described in 26 U.S.C. § 7702B(b). Qualified and non-qualified policies are treated differently for tax purposes, both in regards to premiums paid and benefits received. A qualified policy receives more favorable tax treatment. Benefits received from a qualified plan are tax free, and the premiums paid for those plans are deductible as medical expenses (subject to some limitations). By contrast, the benefits received from a non-qualified policy are fully taxable as ordinary income. Additionally, premiums paid on non-qualified plans are not deductible. For more information on qualified vs. non-qualified plans, see this article from a previous BNN newsletter.

Assuming your LTCI policy is tax qualified, here are several tax breaks to consider:

  1. Individual deduction for LTCI premiums: If you itemize your deductions, you can deduct your premiums as medical expenses on Schedule A of your Form 1040. This may or may not be advantageous, because the deductible portion of your premiums is capped by age, and you can only deduct your medical expenses to the extent they are more than 10% of your adjusted gross income (currently 7.5% if you are age 65 or older). Medical expenses tend to increase as we age, causing a greater portion of costs to be deductible.
  2. Self-employed deduction: Self-employed individuals can deduct their premiums (and those of their spouse and dependents) "above the line," meaning it comes off the top of their income. They are limited only by the amount of their self-employed income. Utilizing the self-employed health insurance deduction allows these taxpayers to reduce their taxable income substantially.
  3. Life insurance and annuities: Although the details are beyond the scope of this article, some favorable tax rules allow certain insurance and annuity assets to be diverted to or exchanged for LTCI with little or no tax impact. Hybrid policies are also available.
  4. State income tax credits: Half of the states offer additional tax deductions or credits as an incentive to buy LTCI. Most New England states do not offer these tax incentives, but Maine does offer a state income tax deduction for premiums paid on a qualified policy.
  5. HSA/MSA premium payments: You can use your HSA to pay a portion of your LTCI premiums on a pretax basis. If you max out your HSA each year that you are employed, you may have enough in your account to pay your premiums every year that you are retired.


Long-term care insurance is expensive, there is no way around it. There are many factors to consider when making the decision to purchase or not purchase. With careful planning and utilization of available tax benefits, you can make LTCI more affordable and ensure that you will receive the care you require should the need ever arise.

Originally published June 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions