Home›Protecting the estate from care costs

Problem 03 · Long-term care

Protecting the estate from care costs

A private nursing home room now runs $129,575 a year. Most couples have no plan for that except to spend everything they saved. There is a third option, and almost nobody explains it properly.

Get the free guide Book a 15-minute call

What care actually costs

Ask a retired couple what happens if one of them needs care for three years and you usually get a version of the same answer: we’ll figure it out. They are not being careless. They thought about it, decided the insurance looked expensive, and quietly concluded they will pay out of savings if it comes to that.

That is a real plan, and for some households it is the right one. But it is worth being precise about what it means, and that starts with the numbers.

National median cost of care, 2025

National median annual costs, 2025 CareScout (Genworth) Cost of Care Survey, released March 2026. In-home figure assumes 44 hours a week; adult day care assumes five days a week. Costs vary considerably by state and metro area.

Two things there deserve a second look. First, in-home care — the option almost everyone says they would prefer — costs more per year than an assisted living facility once you are at 44 hours a week. Staying home is not the cheap option; it is the expensive one.

Second, the direction of travel. Nursing home and assisted living costs rose again this year and have risen in most years for two decades. Whatever number frightens you today, plan against a larger one.

Run your own arithmetic: three years of nursing home care at today’s private-room median is roughly $388,725. Three years of assisted living is roughly $223,200. Now ask what removing that amount from your accounts would do to the income the survivor is left living on.

How likely, and for how long

The federal government tracks this, and the figures are more nuanced than either the insurance industry or the sceptics tend to admit. Someone turning 65 today has roughly a 70% chance of needing some long-term care. Women need it longer on average (3.7 years) than men (2.2 years). About a third may never need it at all — and 20% will need it for longer than five years.

This is not a rare event. Seven in ten is closer to a coin flip than to a catastrophe you can dismiss.
Most needs are measured in years, not decades. The average case is survivable for a household with real savings. It is the tail that does the damage.
One in five going past five years is the number that matters. That is the case that consumes an estate, and it is the case worth insuring against — not the average one.
Women carry more of this risk and usually carry it alone. A wife is more likely to spend down the joint estate caring for her husband first, then face her own longer need with whatever is left.

So the planning question is not “will I need care.” It is: if I turn out to be the one in five, what happens to the person I leave behind?

What Medicare and Medicaid actually do

Medicare does not cover this

Medicare covers medical care. Long-term care is largely custodial — help with bathing, dressing, eating, moving around — and Medicare does not cover custodial care. What it does cover is a limited stay in a skilled nursing facility following a qualifying hospital admission: generally up to 100 days, with the first 20 fully covered and a daily coinsurance applying from day 21, and only for as long as you are actively improving. It is a rehabilitation benefit, not a long-term care benefit. Families discover this distinction at the worst possible moment, usually around day 21.

Medicaid costs you everything first

Medicaid does pay for long-term care, and it is the largest payer of nursing home care in the country. But it is needs-based, with income and asset limits that vary by state, and you generally reach it by spending down what you have. Transfers made to get under the limits are subject to a look-back period — five years in most states — and gifts inside that window can trigger a penalty period during which Medicaid will not pay. Facility choice is narrower too, because not every facility accepts Medicaid beds.

None of that is a criticism of the programme. It is a safety net and it works as one. It is simply not an estate plan, and treating it as one usually means the healthy spouse spends the household’s savings first and inherits the constraint afterwards.

The three options, compared honestly

Every household picks one of these, on purpose or by default.

Three ways to handle the risk
	Self-fund	Traditional LTC insurance	Asset-based LTC
If you need care	Your savings pay the bill, dollar for dollar	Policy pays up to its benefit limits	Pays a multiple of what you repositioned
If you never need care	Money stays yours	Premiums are gone	Passes to heirs as a death benefit, or returns under the contract’s terms
Can the cost go up?	The cost of care certainly can	Yes — carriers have raised premiums on in-force policies	Typically funded once, with the cost fixed at issue
Main drawback	Unlimited exposure; hits the surviving spouse hardest	Use-it-or-lose-it, and rate-increase risk	Ties up a lump sum, and requires health underwriting

Download the Asset-Based LTC guide

There is no universally correct column. The question is which risk you would rather carry: that you spend a large premium on coverage you never use, that a care event consumes your estate, or the opportunity cost of committing a lump sum to a contract.

How asset-based long-term care works

The idea fits in one sentence: instead of paying premiums for coverage you may never use, you move money you already have into a contract that pays for care if you need it and pays your heirs if you don’t.

The money usually comes from somewhere it is already sitting quietly — a CD earning very little, an old annuity nobody has looked at in years, a savings account holding more than it needs to. It is repositioned, not spent.

The life-insurance version

You fund a life insurance policy with a long-term care rider, either as a single premium or over a set number of years. The policy carries a death benefit larger than what you put in, and the rider lets you draw that death benefit down while you are alive to pay for care — often at a multiple of the premium. If care is never needed, the full death benefit goes to your beneficiaries income-tax-free under current law. Most versions also include a return-of-premium provision, so you can change your mind under the contract’s stated terms.

The annuity version

You fund an annuity carrying a long-term care benefit, usually paying two to three times the account value if you qualify for care. Underwriting is typically much lighter than for a life-based policy — often a phone interview rather than a medical exam — which makes this the practical route for people who have already been declined elsewhere. If care is never needed, the account value remains yours and passes to your beneficiaries.

Either way the same pool of money does one of three jobs: care if you need it, a death benefit if you don’t, or access under the contract’s terms if your circumstances change. Nothing is wasted on coverage that goes unused, which is precisely why people who dismissed traditional long-term care insurance are usually willing to look at this.

What has to happen before it pays

Every long-term care benefit in every product is governed by the same three mechanics. Understand these and you can evaluate any contract put in front of you.

The benefit trigger. You generally qualify when a licensed health practitioner certifies that you cannot perform two of the six activities of daily living without substantial assistance — bathing, dressing, eating, transferring, toileting, continence — or that you have a severe cognitive impairment such as Alzheimer’s. Cognitive impairment alone qualifies; you do not also need to fail the ADL test.
The elimination period. A waiting period, commonly 90 days, during which you pay for care yourself before benefits begin. Ask whether it is measured in calendar days or service days — the difference can be months — and whether it has to be satisfied once or once per claim.
The benefit limits. A monthly or daily maximum and a total lifetime maximum. Ask whether unused monthly benefit carries forward, whether the benefit is reimbursement or indemnity — indemnity pays the full amount regardless of what care cost that month — and whether inflation protection is included or costs extra.

And check what counts as care. Not every contract treats settings the same way. Confirm in writing that in-home care, assisted living, adult day care, memory care and skilled nursing are all covered, and at what percentage of the benefit. A policy paying 100% for a nursing home and 50% for care at home is a materially different product from one paying 100% for both — and home is where most people actually want to be.

Work out your own exposure

Five lines, and it tells you whether you have an exposure worth insuring.

Your liquid savings and investments, excluding your home.
The annual cost of care where you live.
The number of years of care to plan for. Three is reasonable; five is the case that does the damage.
Total exposure: line 2 multiplied by line 3.
What is left for the survivor: line 1 minus line 4.

That last line is the whole conversation. If it still supports the surviving spouse comfortably, you can self-fund and you should stop reading. If it is uncomfortable — or negative — you have found a real exposure, and it is worth fifteen minutes to look at what repositioning a portion of line 1 could do about it.

What you should know before you buy one

It requires health underwriting. The time to look is while you’re healthy enough to qualify.
The long-term care benefit isn’t free — it shows up as a lower growth rate or a rider charge on the contract.
Benefits pay only when you meet the policy’s trigger, usually needing help with two activities of daily living or cognitive impairment.
Read what counts as care: in-home, assisted living and facility care are not always covered the same way.
Repositioning an existing annuity or IRA has tax consequences. That gets checked with your CPA before anything moves.

Free, no phone call required

Paying for Care Without Draining the Estate

What care actually costs today, an honest comparison of traditional LTC, self-funding and asset-based coverage, and the questions to ask before you buy any of them.

You’ll get it by email in about a minute. I follow up once to ask whether it raised questions. If it didn’t, tell me so and you won’t hear from me again.

Straight answers

The questions people are too polite to ask.

What is asset-based long-term care?

It is a life insurance policy or annuity funded with money you already have, carrying a long-term care benefit. If you need care it pays a multiple of what you repositioned. If you never need care the money passes to your heirs as a death benefit or returns to you under the contract's terms. Unlike traditional long-term care insurance it is not use-it-or-lose-it.

How is it different from traditional long-term care insurance?

Traditional LTC insurance is paid with ongoing premiums that are gone if you never claim, and carriers have raised premiums on existing policyholders repeatedly. Asset-based coverage is typically funded once with a lump sum, the cost is fixed at issue, and the money is never wasted because it does one of three jobs: pays for care, pays your heirs, or comes back to you under the contract.

Does Medicare pay for long-term care?

No, not in the way most people assume. Medicare covers medical care, and long-term care is largely custodial — help with bathing, dressing, eating and moving around. Medicare covers a limited skilled nursing stay after a qualifying hospital admission, generally up to 100 days with a daily coinsurance from day 21, and only while you are actively improving. It is a rehabilitation benefit, not a long-term care benefit.

Do I have to be healthy to qualify?

There is health underwriting, which is exactly why the time to look is while you are still healthy enough to qualify. The annuity-based version usually has much lighter underwriting than the life-based version — often a phone interview rather than a medical exam — so it is frequently the practical route for someone who has already been declined elsewhere.

What triggers the benefit?

Generally a licensed health practitioner certifying that you cannot perform two of the six activities of daily living without substantial assistance, or that you have a severe cognitive impairment such as Alzheimer's. Cognitive impairment alone qualifies. Most contracts then apply an elimination period, commonly 90 days, before benefits begin.

The other two