Does Long-Term Care Insurance Cover Assisted Living?

What Is Assisted Living?

States have their own specific definitions for “assisted living.” Generally, assisted living takes place in a private home or residential facility. Those locations are licensed to provide a safer environment and care for people who shouldn’t live alone but who don’t need skilled nursing care. Assisted living companies may be privately owned or run by nonprofit or religious organizations.

>> Related Reading: Faith-Based Senior Living

Often called “communities” rather than “facilities,” assisted living communities are licensed by states to provide housing and property maintenance, at a minimum. They usually also provide meals, light housekeeping, group activities, and the option of assistance with activities of daily living (ADLs), such as bathing, dressing, toileting, and medication management, depending on residents’ individual needs. Many assisted living communities also offer independent living and memory care.

Levels or degrees of residential care for older adults generally are in this order, from least amount of care to most: independent living, assisted living, memory care, and skilled nursing. Assisted living communities also often provide short-term, rehabilitative care.

Does Long-Term Care Insurance Cover Assisted Living for Seniors?

The short answer is yes, it can. But whether long-term care insurance will cover your assisted living costs depends on a number of factors. Some policies may be specific about whether they cover assisted living, for example, while other policies may not mention it at all. Don’t assume all LTC policies cover assisted living.

Make sure you not only have assisted living coverage outlined in your policy, but that the benefits you would receive are enough to cover your possible costs. Purchasing a policy with too little coverage won’t be very helpful if you’re unable to cover the remaining assisted living costs.

Long-Term Care Insurance Costs

Long-term care policy costs vary greatly, according to the AALTCI. Costs depend on the age and health of the applicant and a host of individual factors, such as how much coverage you’re willing to pay for and for how long. How much long-term care insurance may cover for assisted living care also depends on where the community is located, since costs vary nationwide.

>> Helpful Tool: Long-Term Care Cost Calculator

In 2023, a 55-year-old man in decent health purchasing $165,000 of immediate benefits could expect to pay $900 a year, according to the AALTCI’s annual Long-Term Care Insurance Price Index. Adding an inflation growth option, which raises benefits 3 percent a year, would cost $2,100 a year. Planning ahead for inflation can be smart, but it tends to double the average costs of premiums, according to the AALTCI.

Women pay more for long-term care insurance (likely because they tend to outlive men by several years). Rates for a 55-year-old woman were $1,500 and $3,700 a year, respectively. Men who are 65 and in good health purchasing the same amount of long-term care coverage can expect to pay $1,700, or $3,135 with a 3 percent inflation growth option. Rates for 65-year-old women were $2,700 and $5,265, respectively.

Premiums are typically tax deductible. If your spouse is eligible for subsidized long-term care insurance through their employer, however, you may not be able to deduct your premiums.

Is Long-Term Care Insurance Right for Me?

The older you are, the more likely you are to need long-term care. Your chances of needing long-term care are also higher if you live alone, have a family history of chronic health conditions, or had poor diet and exercise habits when you were younger.

Medicare pays for long-term care only if you need skilled nursing or rehabilitative care, not assisted living. Medicare does not pay for non-skilled assistance with ADLs, which makes up the majority of long-term care services. Medicaid covers some long-term care, such as skilled nursing, but the program has strict limits on assets and income. Seniors who do not meet low-income requirements may not qualify for state government programs that can help with long-term care costs, but there may be some options for veterans or other specific populations.

>> Related Resource: Does Medicare or Medicaid Cover Assisted Living?

Long-term care insurance can provide some peace of mind about the affordability of long-term care when you need it. Just keep in mind that you need to satisfy “benefit triggers” before you can receive benefits. They’re criteria insurance companies consider before determining whether you’re eligible to receive benefits.

A nurse or social worker typically assesses whether policyholders need help with at least two (but possibly more) ADLs before they’re eligible to receive benefits. Eligibility may also be determined if a policyholder is experiencing cognitive impairment. After your assessment, insurance companies will have one of their care managers discuss a care plan with you once you’re deemed eligible to receive long-term care benefits.

Did You Know: Seven out of 10 people over 65 will need some degree of long-term care support.

Waiting Periods

Many long-term care insurance policies also have an elimination period, which is essentially a “time deductible.” That means the insurance company makes you wait a specified length of time before you can start receiving your benefits. Typical elimination periods run 30, 60, or 90 days.

Your policy may also specify that you have to pay for care needs during that waiting period. Instead of waiting for benefits to kick in, the insurance company requires you to pay for care yourself during the waiting period before you can use your LTC insurance.

Benefit Caps

If your LTC insurance covers assisted living, you may still be on the hook financially for some assisted living care costs if they rise above what your policy will cover. Many policies place a cap on daily or monthly care costs. That may mean you’ll have to cover the costs above what your long-term care insurance will cover if care costs get very high.

Policies may also specify lifetime dollar-amount maximums for benefits or a cap on the number of years you may receive benefits. Make sure you understand the limits and other parameters of your policy.

A major drawback of LTC insurance to keep in mind is that it may not be a sound investment if you or your loved one never end up using it. In that case, another sort of investment fund may be of greater benefit to you or your beneficiaries after you die. Premiums can also go up, and you could lose your coverage before you can use it if paying them is no longer feasible.

Tax Implications

There are some tax benefits to LTC insurance. Premiums are likely tax-deductible because they’re considered a medical expense. If assisted living costs are paid for with funds from LTC insurance, the government does not count that money as income. So it won’t affect eligibility for Medicaid or Social Security.

Tax rules can be complicated, so make sure to go over your policy with a tax or insurance professional. In order to qualify for some tax benefits, for example, LTC insurance must be guaranteed renewable, and you can’t deduct expenses that could be covered by Medicare. When shopping for LTC insurance, be sure to ask an insurance adviser if your policy meets tax-qualification standards and to show you where in your contract it says that premiums may be tax deductible.

Tips for Choosing the Best Long-Term Care Insurance Policy for You

Here are some tips to keep in mind when considering a LTC insurance policy.

Pick the Right Time to Buy

It’s a good idea to purchase a LTC policy before you need assistance with ADLs. Ideally, you should also buy a policy before you have developed health conditions that may cause an insurance company to reject your application, such as Alzheimer’s, Parkinson’s disease, or other neurological diseases. Conditions that may also trigger a denial of coverage include a diagnosis of multiple sclerosis or metastatic cancer that has spread. Premiums will be lower if you buy a policy when you’re younger.

Familiarize Yourself With Realistic Assisted Living Costs

Many families experience sticker shock when a loved one moves to an assisted living community. Care is often a la carte, which means communities itemize costs for all aspects of care, such as medication reminders, each housekeeping visit, or even meals. Those costs can be significant and rise far beyond basic costs of room and board. Talk to an assisted living adviser to find out the real costs of assisted living in your area. You can also reach out to nearby assisted living communities to get a sense of what you would realistically have to pay.

Assess Your Budget Carefully

You don’t want to purchase too little coverage — or too much. If you have considerable savings and investments or family members who can pitch in to help you, you may not need as much coverage. Can you afford higher premiums on a policy with a shorter waiting period to receive benefits? A good financial adviser can help you figure out whether LTC insurance is a smart option and how much coverage you should choose.

Consult an Insurance Expert Before You Buy

Policy parameters are customizable and can vary greatly, so you need to make sure a LTC insurance policy covers the care services you think you may need. Does your policy cover only skilled nursing, or assisted living room and board but not memory care? Also consider whether you or your family can afford to pay for care during insurance waiting periods. Never assume an LTC policy will cover all aspects of long-term care.

Other Ways to Pay for Assisted Living

Many families find it difficult to pay for long-term care, including assisted living, with just savings, investments, and Social Security income. If that’s the case — or if you or your loved one doesn’t qualify for long-term care insurance — here are some options to consider.

Reverse Mortgages

If you are 62 or older and own a home that’s your primary residence, you can take out a reverse mortgage on your home. A reverse mortgage is a tax-free home equity loan that allows you to receive cash against the value of your home while retaining ownership.

>> Learn More: A Guide to Mortgages for Seniors

Money from a reverse mortgage will not count as income that would affect Medicaid eligibility, but be aware that existing mortgage debt or other debt against your home will need to be paid off with that money. You may be required to make repairs on your home as well. Talk to a financial adviser to figure out if a reverse mortgage may be a good option for you to pay for assisted living care.

Annuities

It may be possible to purchase an immediate annuity or deferred long-term care annuity to help pay for assisted living expenses. An annuity is a contract between you and an insurer. In exchange for a lump-sum payment, the insurance company pays you a steady stream of income for a specified period of time, either immediately or in the future.

>>Helpful Tool: Annuities Calculator 

Immediate annuities can be purchased regardless of your health status. If you don’t qualify for long-term care insurance, purchasing a deferred long-term care annuity may be an option. Deferred long-term care annuities are available for people up to age 85.

Annuities can complicate your tax filings, so consult an experienced tax professional about whether an annuity may be a good option to help pay for assisted living. In addition, the amount of an annuity may not be enough to cover long-term care expenses, and inflation could outpace the value of the money you receive with an annuity. Unlike a reverse mortgage, an annuity can affect your eligibility for Medicaid.

VA Aid and Attendance

Veterans who are homebound, have limited eyesight, or need assistance with activities of daily living may be eligible for Aid and Attendance benefits, which are additional funds added to veterans’ pensions to pay for long-term care.

>> Learn more: Veterans Pension Eligibility Requirements

You can apply in person at your regional VA office or by mailing VA Form 21-2680 (Examination for Housebound Status or Permanent Need for Regular Aid and Attendance) to your pension management center.

Medicaid

Medicaid may cover some aspects of assisted living, such as room and board, but typically not care. Benefits and eligibility requirements vary greatly by state. Consult your state Medicaid office to learn more.

State Government Programs

Visit the U.S. government’s Administration for Community Living local services resource page to learn more about how to pay for long-term care in your area. Some states may provide assistance with room and board costs in assisted living for qualified seniors. In Rhode Island, for example, adults over 65 may qualify for assistance if they have a demonstrated need for assistance and their income falls below a certain level. Low-income adults over 65 can get some help paying for assisted living care in Arizona if they qualify.