Long-term care insurance costs, from traditional to hybrid policies

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Either way, it’s a bit of a gamble.

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If you’re thinking about who will care for you later in life or how to support an aging parent or relative, long-term care insurance is one way to plan. Sometimes called elder-care insurance, these policies cover expenses that Medicare doesn’t, such as assisted living, nursing home care, and in-home assistance with daily activities such as bathing, dressing, and eating.

But these policies aren’t cheap—premiums typically cost thousands of dollars annually. And like other types of insurance, traditional long-term care policies operate on a use-it-or-lose-it model, which is why hybrid policies have emerged. They combine long-term care coverage with a life insurance benefit that goes to your heirs if you don’t use the care.

Understanding the costs and what they cover—and don’t—can help you decide whether these policies are right for you.

Traditional and hybrid elder-care insurance policies share some similarities. A policy’s cost depends on factors such as your age at the time of purchase, the maximum daily benefit, the number of years coverage lasts, and any optional features, such as an inflation rider.

Most modern policies are comprehensive, allowing benefits to be used for nursing home care, assisted living facilities, home health care, adult daycare services, and hospice care.

Whether traditional or hybrid, most of these policies have a waiting period, also called an elimination period, before benefits kick in. The waiting period is the gap between when care starts and when the policy starts paying for it. Policyholders choose the length of this period when purchasing a policy.

For example, if a policy has a 90-day waiting period and you move into an assisted-living facility today, you would be responsible for the full cost of care for the first 90 days before insurance starts paying.

Some long-term care insurance policies are tax qualified, meaning premiums may be deductible as a medical expense and benefits are generally tax free if they meet Internal Revenue Service (IRS) guidelines. Eligibility varies by state; check with your state insurance department to confirm whether the policy you’re considering qualifies.

Long-term care insurance isn’t right for everyone. The premiums are hefty, and if you already have difficulty paying for basics—such as utilities, food, or medicine—programs provided by Medicaid and Social Security may be better options.

But if you have significant assets you’d rather not use to pay for long-term care and can afford the premiums, a long-term care insurance policy may be the right choice.

Traditional long-term care insurance operates like other types of insurance: Policyholders pay regular premiums, and the policy helps cover costs when care is needed but isn’t paid for by another source—in this case, Medicare.

Coverage typically includes services such as nursing home care, assisted living, in-home care, and adult daycare. Policies vary in what they cover, how long benefits last, and whether additional features (like inflation protection) are included.

Traditional long-term care insurance policy premiums range widely and depend on what state you live in and your health (for starters). Women typically pay higher premiums than men because they tend to live longer and use these services more frequently, although couples can get discounts.

Traditional policies require medical underwriting, a process where the insurer reviews your health history and may request a medical exam to assess your risk of needing long-term care. Having a preexisting condition doesn’t automatically disqualify you, but some policies may delay coverage related to the health issue during an initial waiting period.

Traditional long-term care policies typically build no cash value, unlike whole life insurance, which accumulates value over time. And like other forms of insurance, traditional policies are use it or lose it: If you never need long-term care, you receive no benefit.

Premiums can increase over time. If you can no longer afford the premiums, you risk losing the money you’ve already paid in, although some insurers may allow the return of some of your money. Premiums may rise for several reasons, including climbing health care costs and changes to the insurer’s pricing structure.

Hybrid long-term care insurance was created for consumers who want coverage but worry about paying for a policy they may never use. These policies combine long-term care insurance with life insurance or an annuity.

If the policyholder doesn’t use the benefits, or uses only part of them, their heirs receive a death benefit. But that flexibility comes at a price—premiums for hybrid policies are more expensive than those for traditional policies.

As you use the hybrid policy to cover care costs, the available death benefit usually decreases—often dollar for dollar—although it can vary by policy.

Comparing the cost of hybrid policies to traditional ones is difficult because prices vary widely based on the features offered and the insurance company selling them. Still, some factors consistently affect pricing, such as your state of residence and your health.

The application process for hybrid policies is similar to traditional long-term care insurance. A medical exam may not be required, but you may have to answer health questions and provide medical records. Preexisting conditions may not be covered or could result in higher costs.

Many hybrid plans can be purchased with a lump sum or through installments over a set period, which helps limit future premium increases. Unlike traditional policies, hybrid plans build cash value over time. How much depends on the policy, but the growth is modest—typically 1% to 3% yearly.

Whether a hybrid policy is worth the costs depends on your estate planning priorities. If you’re looking for long-term care coverage with the added benefit of leaving money to your heirs, a hybrid policy might make sense.

For some, long-term care insurance is about peace of mind—knowing they’ll have help when they need it. Others see it as a way to protect their savings from long-term care costs and avoid having to rely on Medicaid, which covers long-term care only after most personal assets have been depleted.

When shopping for a policy, consider working with a financial planner or insurance agent to explore your options. Compare quotes from multiple insurers and review each company’s financial strength and ratings. Your state’s insurance department can provide a list of approved insurers and information on partnership programs, which link private long-term care policies with Medicaid. Some employers also offer long-term care insurance, often at discounted group rates.