Wealthy PotLong-Term Care Insurance: The Odds, Who Pays, and Whether to Buy It
Most people who reach 65 will at some point need help with everyday tasks such as bathing, dressing or eating. Research by the Department of Health and Human Services estimates that 70% of adults who survive to 65 develop severe long-term care needs before they die, and 48% receive some paid care. Medicare does not pay for this kind of care. Medicaid does, but generally only after you have spent most of your assets. Long-term care insurance exists to fill that gap. This page covers the odds, who pays for what, how policies work, the 2026 tax rules, and how to decide whether a policy makes sense for you.
The Short Answer
- The risk is common but uneven. 70% of 65-year-olds develop severe needs; most paid care is short, but 6% of all older adults have severe needs lasting more than ten years (HHS, 2019).
- Medicare does not pay for long-term custodial care. Medicare.gov: "Medicare doesn't pay for long-term care."
- Medicaid pays for nursing home care for people with low income who "have spent most of their assets," and states must recover the cost from estates afterwards (NAIC).
- A policy pays once you cannot perform two of six activities of daily living or have a severe cognitive impairment, under the IRS definition used by tax-qualified plans.
- 2026 tax limits: premiums count as a medical expense up to $500 (age 40 or under) to $6,200 (over 70), per IRS Rev. Proc. 2025-32.
- Who it fits: the NAIC says someone whose only income is Social Security or SSI "probably [is] not suited" to buy it; someone with assets to protect and the means to pay may be.
How Likely You Are to Need Care
The HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) published lifetime-risk estimates for adults who survive to age 65. "Severe needs" means limitations in at least two activities of daily living or severe cognitive impairment.
| After age 65, adults who... | Share |
|---|---|
| Develop severe long-term care needs before they die | 70% |
| Receive some paid long-term care over their lifetime | 48% |
| Receive paid home care for severe needs | 29% |
| Receive at least 90 days of nursing home care | 28% |
| Receive long-term Medicaid-financed nursing home care | 13% |
| Receive residential care (such as assisted living) | 5% |
| Have severe needs lasting more than ten years | 6% |
The insurance problem is in the spread. Most people who need paid care need it for a relatively short time; a minority need it for years and face very large bills. An earlier ASPE brief (2015) estimated that an American turning 65 would incur $138,000 in future long-term care costs on average, in 2015 dollars, while about one in seven would have a disability lasting more than five years. Averages like that are exactly what insurance cannot help with: what matters is the tail.
Who Pays: Medicare, Medicaid, or You
Medicare: no. Medicare.gov is explicit: "Medicare doesn't pay for long-term care," which it defines as care that "helps with basic personal tasks of everyday life," such as dressing, bathing and using the bathroom. The NAIC adds that Medicare Part A does cover skilled nursing facility care, hospice and limited home care, but "You should NOT count on Medicare to pay your long-term care costs." Medigap supplement policies usually do not cover it either.
Medicaid: yes, after spend-down. Per the NAIC, Medicaid "pays for nursing home care only for individuals who are low income and have spent most of their assets," and also some home- and community-based services. Many people pay privately until they "'spend down' their income and assets until they're eligible." Two points to know:
- A spouse who stays at home may be able to keep some assets and income, and some assets, "such as your home, may not keep you from being eligible." Rules differ by state.
- "Federal law requires your state to recover from your estate the costs of the Medicaid benefits you receive, subject to certain rules." Medicaid-paid care can reduce what you leave to heirs.
Everyone else: savings, family, or insurance. Personal savings, investments and home equity, unpaid care from family, and long-term care insurance cover the rest. Our guide to healthcare costs in retirement covers the wider budget.
How Long-Term Care Insurance Works
The NAIC describes these as policies that "may help you when you are unable to take care of yourself due to prolonged illness or disability." They usually pay for care in a nursing home, and often for home health care, adult day care and assisted living, typically "a fixed amount per day or per visit."
When benefits start. For a tax-qualified policy, you must be certified as chronically ill. IRS Publication 502 defines that as being unable to perform "at least two activities of daily living without substantial assistance from another individual for at least 90 days," or requiring "substantial supervision to be protected from threats to health and safety due to severe cognitive impairment." The six activities of daily living are eating, toileting, transferring, bathing, dressing and continence.
Terms to compare between policies:
- Benefit amount: the daily or monthly maximum the policy pays.
- Benefit period or pool: how long, or up to what total, it will pay.
- Waiting period: how long you must need care before benefits begin.
- Inflation protection: whether the benefit grows over time, which matters if you buy decades before you might claim.
- Covered settings: home care, assisted living and nursing homes are not always all included.
- Pre-existing conditions: the NAIC says a company may not pay for care related to a pre-existing condition for a period after the policy starts, "usually six months."
Premiums are not guaranteed to stay level. The NAIC's advice is direct: "Be sure to ask companies about their rate increase history and whether they have increased the rates on the long-term care insurance policies." A policy that becomes unaffordable in your seventies and lapses leaves you without the cover you paid for.
Tax Treatment and 2026 Limits
Benefits: the NAIC notes that "benefits paid by a tax-qualified long-term care plan generally are not taxable as income," while benefits from a non-tax-qualified plan may be. For policies that pay a set daily amount regardless of actual costs, the tax-free limit for 2026 is $430 a day (IRS Rev. Proc. 2025-32).
Premiums: premiums on a qualified policy count as a medical expense, up to an age-based limit:
| Age at the end of the tax year | 2025 limit | 2026 limit |
|---|---|---|
| 40 or under | $480 | $500 |
| 41 to 50 | $900 | $930 |
| 51 to 60 | $1,800 | $1,860 |
| 61 to 70 | $4,810 | $4,960 |
| Over 70 | $6,020 | $6,200 |
For most people this is worth less than it looks: medical expenses only reduce tax if you itemize, and IRS Publication 502 says only the part of your medical costs "that is more than 7.5% of your adjusted gross income" is deductible. A more useful route for many people: money in a health savings account can pay qualified long-term care premiums tax-free, subject to the same age-based limits. If you are self-employed, IRS Publication 502 also covers how health insurance premiums are treated for you.
Partnership Policies
Many states run long-term care partnership programs with private insurers. The NAIC explains the benefit: "you may be able to keep some of your assets if your long-term care insurance is approved by a state as a long-term care insurance partnership policy." The protection matters if you later apply for Medicaid: part of what you own may not have to be spent down first. Availability and terms vary; your state insurance department can say whether partnership policies are sold where you live.
Alternatives to a Standalone Policy
- Life insurance with a long-term care rider. The NAIC describes riders that "let you use part of your death benefit to pay for long-term care expenses." The part of the death benefit you do not use for care still goes to your beneficiaries, which addresses the "use it or lose it" objection to standalone policies. See life insurance.
- Group coverage. The NAIC notes that coverage is available through some employers and associations, and that "the federal government and several state governments offer long-term care insurance coverage to their employees, retirees and their families."
- Self-insuring. Households with substantial assets may choose to cover care from savings, accepting the risk of a long, expensive stay.
- Relying on Medicaid. For households with modest assets, Medicaid is often the realistic backstop, with the spend-down and estate recovery rules above.
Should You Buy It?
The NAIC says it "will depend on your age, health status, overall retirement goals, income and assets. Premiums are expensive." It draws the two ends of the range:
- "If your only source of income is a Social Security benefit or Supplemental Security Income (SSI), you probably are not suited to buy long-term care insurance."
- "If you have means to pay premiums and assets you wish to protect, a long-term care insurance policy may be right for you."
Between those, a few questions sharpen the decision: could you keep paying if premiums rose sharply in your seventies? Would a long stay in care wipe out assets you want to leave to a spouse or heirs? Is there family who could provide care at home? And would a hybrid life policy suit you better than a standalone one? The NAIC also suggests comparing several companies and checking that any insurer is licensed with your state insurance department before you sign.
Be wary of marketing that implies government backing. "Medicare does not endorse or sell long-term care insurance policies," the NAIC warns.
Sources & Methodology
- ASPE (HHS), What Is the Lifetime Risk of Needing and Receiving Long-Term Services and Supports?, April 2019, for the lifetime risk figures.
- ASPE, Long-Term Services and Supports for Older Americans: Risks and Financing, June 2015, for the $138,000 average future cost and the one-in-seven figure.
- Medicare.gov, Long-term care, for Medicare's non-coverage.
- NAIC, Long-term care insurance consumer page, for Medicaid spend-down and estate recovery, partnership policies, tax-qualified benefits, pre-existing conditions, rate increases and suitability.
- IRS Publication 502, for the chronically ill definition.
- IRS Revenue Procedure 2025-32 and Revenue Procedure 2024-40, for the premium limits and the per diem limit.
We do not quote current national prices for nursing homes or home care: the regulator figures we found (NAIC) date from 2017 and 2018, and current published surveys come from industry sources. Prices vary widely by state; your state insurance department or senior insurance counseling program can give local figures.
FAQ
What are the chances I will need long-term care?
HHS research estimates that 70% of adults who reach 65 develop severe long-term care needs before they die, and 48% receive some paid care.
Does Medicare pay for long-term care?
No. Medicare does not cover long-term custodial care. It covers some skilled nursing facility care, hospice and limited home care, but not help with daily activities over the long term.
Does Medicaid pay for nursing homes?
Yes, for people who meet their state's income and asset limits, which usually means spending down most savings first. States are required to seek repayment from the estate afterwards, subject to rules.
When does long-term care insurance start paying?
For a tax-qualified policy, when you are certified as unable to perform two of six activities of daily living for at least 90 days, or need substantial supervision because of severe cognitive impairment, and after any waiting period in the policy.
Are long-term care insurance premiums tax-deductible?
Up to an age-based limit, from $500 at 40 or under to $6,200 over 70 for 2026, as a medical expense. That only helps if you itemize and your medical costs exceed 7.5% of AGI, but HSA money can also pay qualified premiums tax-free within the same limits.
Can long-term care insurance premiums go up?
They are not guaranteed to stay level. The NAIC advises asking any insurer for its rate increase history before buying.
What is a long-term care partnership policy?
A state-approved policy that lets you protect some assets from Medicaid's spend-down if you later need Medicaid after the policy's benefits are used up.
This article is for general information and is not insurance, tax or legal advice. Figures are from HHS/ASPE, Medicare.gov, the NAIC and the IRS sources listed above, checked on 2026-09-30. Medicaid rules differ by state; for eligibility or estate questions consider an elder law attorney or your state Medicaid office.
