Is long-term care insurance a waste of money?

Editorial team Published on

Long-term care (LTC) insurance is not an automatic waste of money, but it is a poor fit for people with very low or very high net worths.

About 70% of people turning 65 will need some form of long-term care, such as help with bathing, dressing, or nursing home care. Regular health insurance and Medicare do not pay for these custodial care needs. Whether a policy is worth the cost depends entirely on your financial situation.

When Long-Term Care Insurance is NOT a Waste

  • Middle-income earners: If a multi-year health event would wipe out your retirement savings and leave your spouse with nothing, insurance protects your nest egg.
  • Protecting an inheritance: It prevents you from having to spend down all your assets to qualify for government aid later.
  • Reducing family burden: It pays for professional in-home caregivers or facility care so your family does not have to provide round-the-clock physical labor.
  • You buy at the right age: Buying a policy in your mid-50s to early 60s keeps premiums much lower than waiting until your 70s. Read more on the National Council on Aging for average costs.

When Long-Term Care Insurance IS a Waste

  • If you have very low income or assets: If you cannot afford the premiums or expect to have little money, Medicaid will cover your long-term care expenses once your assets are depleted.
  • If you have high net worth: If you can easily self-insure and pay hundreds of thousands of dollars for care out of pocket without altering your lifestyle, paying yearly premiums is unnecessary.
  • Traditional "use it or lose it" risk: If you die without needing care, the premiums paid over the years provide no financial return. (Note: Newer "hybrid" policies combine life insurance with an LTC rider so your family gets a benefit if you never need care.)
  • Rising and unpredictable premiums: Stand-alone LTC insurance markets have struggled, and many older policyholders have faced sudden, steep rate hikes by KFF Health News reports.

What does Suze Orman say about long-term care insurance?

Suze Orman strongly advocates buying long-term care insurance to protect retirement savings from expensive eldercare costs.

Core Advice

  • Protect your assets: Eldercare can cost $4,000 a month for home care and $8,000 or more for a nursing home. Medicare and health insurance cover very little of this long-term care.
  • Learn from experience: Orman shares her personal story of paying over $1 million for her mother's late-life care because her mother never signed up for a policy. You can read more on The Case for Long-Term Care Insurance.
  • Buy at the right time: She recommends looking into policies in your mid-to-late 50s when rates are lower and you are healthier.
  • Affordability test: Only buy a policy if you can easily pay the ongoing costs, including a potential 40 percent increase in future premiums. Do not buy coverage if it hurts your basic retirement savings.

Types of Coverage

  • Traditional policies: Work like health insurance, but premiums can rise over time.
  • Hybrid policies: Combine life insurance or annuities with care coverage, though they usually require large upfront payments.
  • Annuity alternatives: Fixed index annuities with care riders are an option if you do not qualify for traditional coverage.

What percentage of people actually use their long-term care insurance?

Approximately half (around 50%) of people who buy traditional long-term care insurance eventually file a claim and use their benefits.

Key Utilization Facts

  • Claim Likelihood: Industry data shows that about 50% of policyholders who hold individual long-term care policies use them for claims lasting longer than one year.
  • Claim Duration: About 15% of all claimants require care that lasts for more than five years.
  • Care Starting Point: Most claims begin at home—roughly 71% of initial claims are for home care, while 16% start in a nursing home and 13% in an assisted living facility.

Market Context

  • Low Overall Ownership: Only about 3% to 4% of U.S. adults (and roughly 3% of those over 50) actively hold stand-alone long-term care insurance, even though roughly 70% of adults turning 65 will need some form of long-term care in their lifetimes.
  • Evolving Products: Due to past miscalculations in how many people would use policies, many traditional insurers left the market. Growth has shifted toward hybrid products, such as life insurance policies with chronic illness riders.

What does Dave Ramsey say about long-term care insurance?

Dave Ramsey considers long-term care insurance (LTCI) a mathematically worthwhile purchase that protects a nest egg from being wiped out by extended medical or assisted living costs.

Key Recommendations

  • When to Buy: Ramsey recommends waiting until you turn 60 years old to purchase a policy. He reasons that the statistical risk of needing nursing or long-term care before 60 is very low (<1%), so buying earlier wastes money on premiums.
  • Who Needs It: He suggests it for people with a net worth or assets roughly between $200,000 and $5 million. If you have fewer assets, you might rely on Medicaid after depleting your savings; if you are ultra-wealthy, you can easily self-insure.
  • What It Covers: A good policy should cover in-home assistance, adult day care, assisted living facilities, and nursing home care.

Crucial Rules From Ramsey

  • Never Bundle: Do not bundle long-term care insurance with life insurance (such as cash-value or whole life policies with an LTC rider), which he views as an expensive rip-off. Buy a standalone policy instead.
  • Protect the Spouse: Proper coverage ensures that if one spouse requires expensive end-of-life care, the surviving partner’s savings and home are not completely drained.
  • Learn more about his framework on the Ramsey Solutions Long-Term Care Guide.

Why do people not buy long-term care insurance?

People often do not buy long-term care insurance (LTCI) because policies are very expensive, poorly understood, and do not always make financial sense.

High Cost and Unpredictable Premiums

  • Expensive rates: Premiums for stand-alone policies have skyrocketed because insurers miscalculated how long people would live and how much care would cost.
  • "Use-it-or-lose-it" risk: Traditional policies do not refund your money if you never need care, making it feel like a bad financial bet compared to investing that money yourself.
  • Rising prices: Insurers frequently raise rates on existing policyholders, making it hard to predict future costs.

Confusion and Lack of Education

  • Mistaken coverage: Many people mistakenly believe they are already covered by standard health insurance, disability insurance, or Medicare. Medicare only pays for short or rehabilitative nursing stays, not long-term custodial care.
  • Lack of awareness: Some consumers simply do not know that stand-alone long-term care insurance exists or how it works until it is too late to buy.

Financial Alternatives and "Self-Insuring"

  • Self-funding: Wealthier individuals choose to "self-insure," meaning they have enough personal savings and assets to pay for care out-of-pocket if they need it.
  • Medicaid safety net: Low-income individuals often rely on Medicaid, which covers long-term care once personal assets are spent down to the required limit.

Underwriting and Eligibility Barriers

  • Strict qualification rules: Insurers reject a high percentage of applicants (sometimes up to 47%) due to age or pre-existing health and cognitive issues.
  • Hassle of medical exams: The medical underwriting process requires health interviews and records checks, which discourages many applicants.

Do I Really Need Long-Term Care Insurance?

9 related questions found

Who should not get long-term care insurance?

People with very low assets or those who already have disqualifying health conditions should not buy or try to get long-term care insurance.

Low-Income or Low-Asset Individuals

  • Medicaid recipients: If you have few assets and low income, you will likely qualify for Medicaid to cover nursing home or long-term care costs once you spend down your savings, making insurance premiums an unnecessary expense.
  • People living on a tight fixed income: If you cannot comfortably afford current premiums, you should skip traditional policies because insurers can raise rates over time, which frequently leads to policy lapses.

People with Disqualifying Health Conditions

  • Existing daily care needs: Anyone who already needs help with activities of daily living—such as bathing, dressing, eating, or toileting—is automatically denied coverage.
  • Severe cognitive impairment: People diagnosed with Alzheimer's disease, dementia, or related memory decline cannot qualify for new policies.
  • Major chronic or progressive illnesses: Conditions like Parkinson's disease, multiple sclerosis, ALS, untreated substance abuse, or recent active cancer treatments typically result in immediate underwriting disqualification.
  • Heavy mobility aid dependence: Full-time use of a wheelchair, oxygen equipment, or a walker often disqualifies an applicant.

How much does Suze Orman say you need to retire?

Financial expert Suze Orman famously states that you need at least $5 million to $10 million if you plan to retire early. While she has received significant backlash for this high threshold, she insists that smaller nest eggs—even a $2 million portfolio—are "pennies" or "chump change" in today's economic climate due to inflation and catastrophic health risks.

Why Does She Say You Need So Much?

Orman’s calculations are conservative and assume worst-case scenarios, such as needing full-time medical care later in life. Her logic includes:

  • The $350,000 Rule: She bases her early retirement scenario on needing roughly $100,000 for standard annual living expenses plus an additional $250,000 a year for unexpected catastrophes or private long-term care.
  • Living Off the Yield: To generate $350,000 after taxes (about $500,000 pre-tax) using a safe 5% withdrawal or interest yield without draining your core principal, you mathematically require a $10 million portfolio.

The Standard Retirement Age Multipliers

If you are planning for a traditional retirement around age 67 rather than early retirement, Orman defaults to standard age-based income milestones:

  • By age 30: 1x your current salary saved
  • By age 40: 3x your current salary saved
  • By age 50: 6x your current salary saved
  • By age 60: 8x your current salary saved
  • By age 67: 10x your final salary saved

Other Crucial Retirement Rules from Suze Orman

Beyond a raw net-worth figure, Orman highlights several requirements before you can comfortably step away from work:

  • The Cash Reserve Rule: You should transition into retirement holding 3 to 5 years' worth of living expenses entirely in liquid cash (like a high-yield savings account), completely separated from the stock market, so you never have to sell equities during a market crash.
  • No Debt: She strongly believes you should not retire unless your primary mortgage is completely paid off.
  • Delay Social Security: Orman advises against collecting Social Security early at age 62, strongly pushing people to wait until age 70 to secure a 76% higher permanent monthly payout.

At what age do most people need long-term care?

Most people who require formal long-term care begin needing regular or intensive assistance after turning 80 years old.

General Age Timelines and Risks

  • Ages 65 to 74: Most adults remain independent during this decade, though early chronic conditions or memory concerns may begin. About 70% of individuals turning 65 will need some form of long-term care in their remaining lifetime, but intensive paid support usually comes later.
  • Ages 75 to 84: Frailty increases, and the average age for moving into formal facility-based care or heavier assisted living hovers around 84 years old.
  • Age 85 and older: Nearly 60% of people in this age group require regular support, making it the period when the highest volume of full-time, dementia, or nursing care is utilized.

Key Statistics

  • Lifetime Probability: According to the U.S. Department of Health and Human Services via ASPE, roughly 70% of adults who reach age 65 will develop a need for severe long-term services and support.
  • Claim Timelines: A vast majority of long-term care insurance claims and facility entries happen after age 80.
  • Duration: The average total paid care usage lasts about 1.1 to 1.4 years, though needs vary widely based on health and marital status.

What is the average monthly cost of long-term care insurance?

The average monthly cost of long-term care insurance typically ranges from $80 to over $450 per month, depending heavily on your age, gender, and whether you add inflation protection.

Average Monthly Costs by Age and Gender

For a standard policy with roughly $165,000 in initial benefits, average monthly premiums look like this:

  • Age 55:
    • Single male: ~$79 to $183 per month ($950 to $2,200/yr)
    • Single female: ~$125 to $312 per month ($1,500 to $3,750/yr)
  • Age 60:
    • Single male: ~$98 to $100 per month ($1,175/yr)
    • Single female: ~$158 to $370 per month ($1,900/yr)
  • Age 65:
    • Single male: ~$142 per month ($1,700/yr)
    • Single female: ~$225 per month ($2,700/yr)
    • Couples: Combined averages start around $417 to $585+ per month ($5,010 to $7,030/yr) depending on inflation riders.

(Note: Adding compound inflation protection, which increases your benefit value over time, can more than double these base rates.)

Key Factors That Change the Cost

  • Age at enrollment: Buying a policy in your mid-50s is much cheaper than waiting until your 60s or 70s.
  • Gender: Women pay more than men because they statistically live longer and file more claims.
  • Health status: Pre-existing conditions can raise your rates or lead to a denial of coverage.
  • Policy details: The total coverage amount, length of the benefit period, and the elimination period (waiting period before benefits kick in) all alter your monthly payment.
  • You can review broader financial impacts and care data through Fidelity Investments or read detailed overviews at the National Council on Aging.

Why can't seniors afford long-term care?

Seniors cannot afford long-term care because costs average $74,000 to $130,000 per year, and standard health coverage like Medicare explicitly excludes ongoing custodial and non-medical care.

The Core Financial Gap

  • Extremely High Costs: Nursing home rooms average around $130,000 a year, assisted living costs over $74,000, and daily in-home care aides exceed $80,000 annually.
  • The "Missing Middle": Millions of middle-income older adults have too many assets to qualify for government aid, but far too little savings to pay out-of-pocket for private care. Studies show only a tiny fraction of older single seniors can afford daily care or assisted living using just their regular income and housing equity.
  • Medicare Exclusions: Most people mistakenly believe that Medicare covers long-term care. In reality, Medicare only covers short-term skilled nursing rehabilitation (up to 100 days), completely excluding everyday custodial help.
  • The Medicaid Trap: Medicaid covers long-term care, but it requires seniors to exhaust nearly all of their personal savings and assets down to a strict poverty level (often a $2,000 limit) before kicking in.
  • Collapsed Private Insurance: Standalone long-term care insurance is expensive, and the private market has largely collapsed or priced out average buyers, leaving very few older adults with active policies.