Buying Long-Term Care Insurance To Save For The High Cost of Assisted Living

The national median cost of an assisted living community is now $74,400 a year — up 44% over just five years, nearly double the pace of inflation, according to CareScout’s 2025 Cost of Care Survey. A private nursing home room runs even higher, averaging $129,575 a year.

Those numbers explain a pattern a recent Washington Post analysis found: looking at thousands of seniors’ final decade of finances, more than 10% died with nothing left. Baby boomers control over half of U.S. household wealth, and an estimated $68 trillion to $84 trillion was expected to pass down to heirs over the next two decades — but rising elder-care costs are quietly eating into that transfer, one nursing home bill at a time.

Long-term care doesn’t just affect the very elderly, either. Nearly two-thirds of people over 65 will need some type of paid or family-provided care, but roughly 40% of people currently receiving long-term care services are between 18 and 64. Even more people in that age range are affected indirectly, as adult children who end up covering costs for an aging parent.

How Much Long-Term Care Actually Costs Now

Here’s the current national median pricing, per CareScout’s 2025 survey:

These are national medians — costs run considerably higher in expensive metro areas and for specialized memory care, and considerably lower in parts of the Midwest and South. Home care isn’t automatically the cheaper option once you need round-the-clock coverage rather than a few hours a day — at full-time hours, it can cost as much as a nursing home.

What Medicare Actually Covers (Less Than Most People Think)

A common misconception is that Medicare pays for long-term care. It doesn’t — not the ongoing, custodial kind most people picture.

Medicare will only pay for skilled nursing facility care, and only if all of these apply: you had a qualifying 3-day inpatient hospital stay, you’re admitted to a Medicare-certified skilled nursing facility within 30 days of that hospital discharge, you need daily skilled nursing or rehabilitation care for the same condition you were hospitalized for, and a doctor certifies that need.

Even then, coverage is time-limited and not free. For 2026: Medicare covers days 1–20 in full (after the standard hospital deductible), then charges a $217/day coinsurance for days 21–100, then covers nothing at all past day 100. That means even a beneficiary who qualifies for the maximum Medicare-covered stay still owes over $17,000 out of pocket in coinsurance alone within the first 100 days — and that’s only for skilled nursing rehab, not for an ongoing assisted living stay or in-home custodial care.

What Medicaid Covers (After You’ve Spent Down)

Medicaid will cover long-term nursing home care, unlike Medicare — but only once you’ve spent down to your state’s asset limit. In most states that’s just $2,000 for a single applicant, though it varies significantly: California’s limit is $130,000 as of 2026, while Illinois’s is $17,500.

Medicaid also applies a 60-month “look-back” period, reviewing the five years of financial history before your application to check for asset transfers made below fair market value. Giving away assets to qualify sooner than your actual spend-down would allow can trigger a penalty period during which Medicaid won’t pay for care. For married couples where only one spouse needs care, the non-applicant spouse can typically keep significantly more — up to $162,660 in countable assets as of January 2026, under the Community Spouse Resource Allowance.

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How to Actually Pay for Long-Term Care

Long-term care insurance remains one of the main tools for protecting savings from a long-term care event, but the market has changed substantially. Many major insurers exited the standalone LTC insurance business after badly mispricing risk in the 1990s and 2000s — underestimating both how long people would live and how much care would cost — which led to massive premium increases (often 50–100%) on existing policyholders.

As a result, most new policies sold today are hybrid products that combine long-term care coverage with permanent life insurance. The appeal is straightforward: if you never need care, your beneficiaries still receive a tax-free death benefit, removing the “pay premiums for decades and get nothing back” risk that turned people off traditional standalone policies. Premiums for either type vary widely by age, health, gender, and coverage amount — commonly anywhere from about $80 to $530+ per month.

Tax treatment: premiums for a qualifying long-term care insurance policy count as a medical expense, deductible to the extent that they, combined with your other unreimbursed medical expenses, exceed 7.5% of your adjusted gross income.

Self-funding is the other realistic path, especially for people who can’t qualify for insurance due to age or health, or who’ve decided the premiums aren’t worth it. This usually means keeping a dedicated pool of savings — a high-yield savings account or investment account earmarked specifically for care costs — separate from retirement income you’re counting on for everyday expenses. It’s the same “build the safety net before you need it” logic behind most of the moves in my guide to good personal finance.

Given how much of this potential cost intersects with the money you’re hoping to eventually pass on, it’s worth reviewing your long-term care plan alongside your broader estate plan — including how inherited retirement accounts get treated, since a parent’s long-term care spend-down can directly change what’s left to leave behind.

Common Issues to Watch Out For

Assuming Medicare will cover an extended nursing home stay. It caps out at 100 days per benefit period, with real out-of-pocket costs before that cap even hits, and doesn’t cover custodial or assisted-living care at all.

Giving away assets to qualify for Medicaid faster. The 60-month look-back period can trigger a penalty period that delays coverage — well-intentioned gifting to adult children is one of the most common mistakes families make here.

Waiting too long to buy long-term care insurance. Premiums rise sharply with age, and a health issue can make you uninsurable for either a standalone or hybrid policy — this is a “buy it while you don’t need it yet” product.

Not accounting for regional cost differences. National medians can be misleading; the same care can cost dramatically more in a high-cost metro area than the figures above suggest, or noticeably less in lower-cost regions.

Assuming a fixed Social Security income will stretch to cover care costs. Even with annual COLA increases, most retirees’ guaranteed income falls far short of a $74,400+ annual care bill without additional savings, insurance, or family support.

Looking Ahead: 2027

Watch for CareScout’s next Cost of Care Survey (typically released in late fall) to see whether the recent pace of increases — nearly double inflation over the last five years — continues or moderates. I’ll also be watching whether more insurers exit the standalone long-term care market in favor of hybrid products, a trend that’s been consistent for several years running. On the government side, Medicare’s 2027 coinsurance and deductible amounts are typically announced in the fall, and Medicaid asset limits and the Community Spouse Resource Allowance are adjusted annually as well — I’ll update the figures on this page once each is finalized.