Advancements in medical treatments have extended life expectancy and enabled life-sustaining therapies. That’s the good news. But these advances have added to the rising long-term care risk in our country. Approximately 70% of adults age 65 and older will require some form of LTC, according to the U.S. Department of Health and Human Services. And one in four Americans (24%) will need LTC services for more than two years, according to Morningstar. Additionally, Morningstar found 15% will spend more than two years in a nursing home.
And LTC is not cheap. The median national cost of a private room in a nursing home is $10,646 per month, according to Genworth and Carescout’s 2024 Cost of Care Survey. For a semi-private room, the median national monthly cost is $9,277. Yet, only about 3% to 4% of Americans aged 50 and older purchase a long-term care policy, as reported by LIMRA.
This leaves many individuals and families—including the affluent—vulnerable to significant financial and emotional burdens when it comes to LTC. People often don’t think they’ll need nursing home care, and they assume that Medicare or private health care insurance will cover it. Not so.
So, it’s essential for both individuals and their advisors to address these concerns proactively. Ignoring them is not going to make them go away.
Barriers to Long-Term Care Insurance Adoption
Several obstacles contribute to the low rate of adoption of LTC insurance. Many people have misconceptions about the actual costs of LTC insurance, as well as what it covers and whether they’ll qualify. This often leads to confusion or indecision, and they keep kicking the LTC planning can down the road. Too many people assume LTC planning can be dealt with later, but when they finally get around to it, obtaining coverage can be difficult, leaving self-funding or government assistance as the only remaining options.
The Advisor’s Role: Proactive Education and Guidance
Overcoming these challenges requires advisors to address LTC early and provide ongoing education to clients, but there’s a big disconnect. For instance, 60% of advisors believe at least a quarter of their clients will need three or more years of LTC in retirement. Yet only one-third of clients say the reason they haven’t discussed LTC is because their advisor never brought it up.
Facilitating open conversations about long-term plans and the potential impact of major health events enables clients to recognize blind spots and make informed choices that reflect their unique situations and risk tolerance.
Start by asking clients thoughtful questions about their health situation, family history, location of close family members and views about aging in place vs. a retirement community. Ultimately, this helps clients see the magnitude of the challenge and the true cost of forgoing protection against LTC care risks. A well-constructed plan can preserve their dignity, security and peace of mind. It can also preserve worth and minimize strain on the family.
The Reality of Insurance Decisions
Unfortunately, many people believe they don’t need LTC insurance because there will be other alternatives. This overlooks a fundamental truth: everyone pays for insurance. You either lay off the risk to an insurance carrier or you accept the risk yourself. If you choose to self-insure, it means you are trading the short-term premium savings for the potentially significant expenses associated with care. Many people who self-insure hope they will never need elder care later in life, but when it comes to LTC, the odds do not favor this approach. As mentioned earlier, research shows seven in 10 U.S. adults aged 65 or older will need LTC at some point in their lives, and one in four will need LTC services for more than two years.
Why Don’t More People Purchase Long-Term Care Insurance?
The cost is a major barrier for most. In a 2024 Nationwide Retirement Institute Long-Term Care Survey of adults aged 28 and above, nearly half cited cost as their main reason for not buying a policy. However, when presented with a sample policy costing only $130 per month, 40% reconsidered their decision.
Beyond cost, other deterrents include uncertainty about future needs, concerns over policy exclusions, premium rising unexpectedly, doubts about being able to qualify for coverage, loss of premiums if never used, and the long-term financial stability of carriers decades into the future.
As mentioned earlier, many people assume Medicare or private health insurance will cover long-term care expenses. However, custodial care, assisted living and long-term nursing home stays are not covered. Expenses associated with activities of daily living, nursing homes, assisted living facilities and in-home care services must be paid out-of-pocket, through personal savings, investments, home equity or by qualifying for Medicaid.
Strategies for Paying for Long-Term Care
Advisors provide substantial value to clients by incorporating LTC planning into their overall financial plan. Traditional LTC insurance can offer strong benefits per premium dollar, while hybrid and annuity-based solutions may appeal to clients interested in repurposing assets. Self-funding should only be recommended for clients meeting specific criteria.
Self-funding offers autonomy, but it places significant financial risk on the client’s household balance sheet. It forces clients to use personal assets to pay for care and exposes their portfolio to potentially unlimited downside if their care needs escalate. A client’s minimum net worth, age and amount of surplus cash should be considered carefully before taking the self-funding route. Other risks include unpredictable care costs and asset erosion, especially later in life.
Alternative Long-Term Care Funding Solutions
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Hybrid life insurance with LTC benefits: This “two-in-one” product provides a death benefit to heirs and allows clients to use policy funds for qualified LTC expenses. Families appreciate the efficiency, leverage, and peace of mind, knowing the policy delivers value whether care is needed or not. Downsides may include higher premiums compared to traditional insurance.
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Traditional LTC insurance: A “pure protection” option, this insurance is designed specifically to cover qualified care costs at home, in assisted living, or in a nursing facility. Premiums are typically lower for the coverage provided, but the policy only pays out if care is needed—there is no death benefit or legacy value if unused.
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Life insurance with LTC riders: These policies offer flexibility to access part of the death benefit to pay for qualified care expenses without liquidating investments or drawing down retirement assets. They bridge protection and liquidity, allowing clients to use benefits while living, or pass them on if not needed. The death benefit is reduced if care is accessed.
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Annuities with LTC benefits: These products convert existing assets into leveraged care funding. Annuities can be especially effective for clients with low-yield or non-qualified contracts, turning tax-deferred growth into enhanced coverage. Benefits include predictable income and tax advantages, though drawbacks may include surrender charges, limited liquidity, or lower returns compared to other investments.
Advantages of LTC Insurance
In addition to asset protection, here are four other advantages of LTC insurance:
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More care options: Having LTC insurance can provide access to a broader range of care choices, including high-quality facilities and in-home services that might otherwise be unaffordable. It also allows policyholders to make their care decisions based on preference rather than financial limitations.
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Relieves burden on family members: Without coverage, family members often become caregivers, which can be physically, emotionally and financially challenging. LTC insurance helps pay for professional care, reducing the strain on loved ones.
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Potential tax advantages: Premiums for qualified LTC insurance policies may be tax-deductible, depending on age and tax filing status. Additionally, benefits received from a policy are generally not considered taxable income.
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Inflation protection options: Many policies offer inflation protection, ensuring that benefits keep pace with rising care costs over time.
Your clients have worked too hard and saved too diligently to have their plans derailed by the ever-rising cost of care later in life. Make LTC readiness a regular part of client reviews and give it the same attention as market volatility, asset allocation, and tax mitigation.
