Planning for long-term care in a changing insurance market

Executive summary

Long-term care is not simply a nursing-home issue. It includes assistance at home, adult day services, assisted living, memory care, and nursing-facility care. Someone turning age 65 has nearly a 70% chance of needing some form of long-term services and supports during the remaining years of life. Women on average need care longer than men, and about one in five people turning 65 may need care for more than five years.

The financial exposure is substantial. In 2025, the national median annual cost was approximately $80,080 for a non-medical caregiver at 44 hours per week, $74,400 for assisted living, and $129,575 for a private nursing-home room. California medians were higher for most settings, including approximately $91,520 for home care and $182,135 for a private nursing-home room.

Traditional stand-alone long-term care insurance has helped many families preserve assets and obtain care. It also went through a difficult repricing era. Early policies were often priced with assumptions that proved too optimistic about claim levels, policy lapses, and investment earnings. Many long-time policyholders later faced premium increases or choices to reduce benefits. The NAIC reported that among heavily affected blocks studied, the average single approved increase was 37% and the average cumulative approved increase was 112%.

Today, no single solution is best for everyone. Traditional stand-alone insurance remains available from a smaller group of carriers, but the new-sales market has shifted decisively toward combination designs.

Why long-term care planning matters

Long-term care is personal care, not ordinary medical treatment

Long-term care generally supports people who need ongoing help because of chronic illness, disability, cognitive impairment, or frailty. Common services include help with bathing, dressing, eating, transferring, toileting, continence, meal preparation, supervision, transportation, and household tasks. Care may be provided by paid professionals, family members, or both.

Medicare covers medically necessary acute care and limited skilled services, but it does not generally cover custodial long-term care when that is the only care needed. Medicaid can finance extensive long-term services for people who meet applicable financial and functional eligibility rules, which vary by state.

2025 cost of care

How the long-term care insurance market evolved

The first generation: traditional stand-alone coverage

Individual long-term care insurance became available in the 1970s. Early contracts focused primarily on nursing-home care. Over time, policies expanded to include home health care, adult day care, assisted living, care coordination, and other services. Traditional policies typically use a monthly or daily benefit, a maximum benefit pool or period, an elimination period, and optional inflation protection.

Why many older policies experienced premium increases

• More policyholders kept their coverage than insurers expected, so lapse rates were lower.
• Claims and care duration were higher than originally projected for some policy blocks.
• Long periods of low interest rates reduced investment income supporting future benefits.
• Some early products offered rich benefits, including lifetime coverage and strong inflation protection, at prices that were difficult to sustain.

Premium increases generally apply to a class of similar policies after state regulatory review; they are not based on one policyholder becoming older, sicker, or filing a claim. Guaranteed renewable means coverage cannot be individually canceled if premiums are paid, but it does not mean the premium is guaranteed never to increase.

The current market: multiple ways to fund care

What 2024 new-sales data show

The composition of newly issued policies has changed dramatically. The following figures are based on policy count, not total premium, assets deposited, benefits purchased, or the number of older policies already in force. They describe the direction of the new market, not the entire installed base of long-term care coverage.

Annuity/LTC products are measured separately. LIMRA reported record 2024 sales, more than 50% year-over-year growth, and approximately 14% of total individual long-term care insurance sales — though only 0.2% of total annuity sales. That indicates meaningful growth from a small base rather than market dominance.

Traditional stand-alone pricing: a practical benchmark

A richer design with a larger monthly benefit, five-year or shared benefits, stronger inflation protection, or less favorable underwriting may cost more. A leaner design may cost less. California buyers should obtain current carrier illustrations and review each insurer’s rate history, because traditional premiums may be increased for a policy class after regulatory approval.

Why combination products may feel more reasonable to many households

Combination products are not necessarily less expensive in nominal dollars. Their value proposition is different: premiums or assets may support long-term care and also retain a death benefit, contract value, or other financial utility. For households with suitable assets, this can make the funding decision feel more durable and easier to maintain than an open-ended stand-alone premium. For households seeking the greatest care benefit for the lowest current outlay, traditional insurance may still be more efficient. The appropriate comparison is therefore total value, guarantees, liquidity, inflation protection, claims design, and long-term affordability — not premium alone.

Asset-based and linked-benefit long-term care

“Asset-based long-term care” is a broad category. It generally refers to a life insurance policy or annuity that includes qualified long-term care benefits. Note that some carriers use similar wording as a product name, so the generic category and any particular product name should not be treated as identical.

These arrangements have become prominent because they address several consumer concerns: uncertainty about future premium increases, the fear of paying for coverage that may never be used, and the desire to reposition an existing asset rather than add another indefinite expense.

Potential advantages

• Benefits are available for qualified long-term care if care is needed.
• If care is not needed, a death benefit or remaining contract value may still benefit the owner or family.
• Some products offer guaranteed premiums, guaranteed benefits, limited-pay schedules, or lifetime continuation options.
• Cash-indemnity designs can provide a fixed monthly benefit after claim approval without monthly reimbursement paperwork; reimbursement designs pay eligible actual expenses.
• A properly executed Section 1035 exchange may allow certain life insurance or annuity values to move into qualified long-term care coverage without recognizing current gain, subject to tax rules and direct-transfer requirements.

Important limitations and questions

• How much liquidity is surrendered or restricted?
• Is the premium truly guaranteed, and which benefits are guaranteed?
• Does the design include meaningful inflation protection?
• Is the claim benefit reimbursement, cash indemnity, or disability-style indemnity?
• Are informal caregivers, family caregivers, international care, home modifications, or care coordination covered?
• What is the elimination period, and is it based on calendar days or service days?
• Is the rider qualified long-term care under Internal Revenue Code Section 7702B, or is it a chronic-illness rider with different definitions and tax treatment?
• What happens to the death benefit, cash value, surrender value, and beneficiaries after LTC benefits are used?
• How strong is the carrier, and how does the state guaranty association apply?

Representative providers and product categories

The following table is educational, not exhaustive, and is not a ranking or endorsement. Product availability, underwriting, state approval, riders, and marketing names change. Consumers should use current carrier-approved materials and compare multiple solutions.

A practical consumer decision framework

A sound long-term care review should answer these questions in order.

1. Care preference. Where would I prefer to receive care, and who would I want involved?
2. Family impact. What would caregiving mean for a spouse, children, work, health, and relationships?
3. Financial exposure. How many years of local care costs could my income and assets absorb?
4. Coverage objective. Do I want to cover the full cost, a catastrophic tail risk, or only part of the monthly cost?
5. Funding source. Ongoing premium, limited-pay premium, cash, securities, life insurance, annuity, IRA, home equity, or a combination?
6. Benefit design. Monthly amount, duration, inflation, elimination period, home-care provisions, shared benefits, indemnity versus reimbursement, and residual value.
7. Tax and legal review. Section 7702B status, Section 1035 eligibility, qualified-account taxation, business deductions where applicable, Medi-Cal planning, ownership, and beneficiaries.
8. Carrier review. Financial strength, product history, claims process, rate history for traditional products, and state approval.

California-specific considerations

California care costs are generally above national medians in several major categories. California also maintains the California Partnership for Long-Term Care. Partnership-approved policies must meet state standards and can provide a Medi-Cal asset disregard based on qualifying benefits paid, subject to program rules and future eligibility requirements.

Conclusion

The long-term care market has evolved because family needs, care settings, insurer experience, and consumer priorities have changed. Traditional insurance can still provide efficient, dedicated risk transfer, particularly for applicants who want a defined benefit pool and can sustain future premiums. However, new-sales data show that life/LTC combination coverage has become the dominant private-market solution, while annuity/LTC products are a smaller but rapidly growing segment. The industry moved in this direction to address the central weaknesses consumers associated with older stand-alone coverage: possible class-wide premium increases, a use-it-or-lose-it perception, and limited value if no claim occurs. Asset-based plans often require a larger upfront or limited-pay commitment, so they are not necessarily cheaper. Their appeal is that the funding can serve more than one purpose and may provide more predictable contractual value.

The strongest plan is rarely a single product. It is an integrated strategy that identifies care preferences, protects the family caregiver, estimates local costs, preserves liquidity, coordinates taxes and estate planning, and uses insurance only where it improves the overall outcome.

References

1. Administration for Community Living, “How Much Care Will You Need?” acl.gov
2. Medicare.gov, “Long-Term Care Coverage.” medicare.gov
3. CareScout, “Cost of Long-Term Care by State, 2025 Cost of Care.” carescout.com
4. CareScout, “2025 Cost of Care Data for California,” March 2, 2026.
5. National Association of Insurance Commissioners, “Long-Term Care Insurance Rate Increases and Reduced Benefit Options,” 2022. naic.org
6. California Department of Insurance, “Long Term Care Insurance Rate History.” insurance.ca.gov
7. Internal Revenue Service, Notice 2011-68 / Internal Revenue Bulletin 2011-36, Sections 72, 1035, and 7702B. irs.gov
8. Internal Revenue Service, Publication 502, “Medical and Dental Expenses.” irs.gov
9. California Department of Health Care Services, “California Partnership for Long-Term Care.” dhcs.ca.gov
10. EY and LIMRA, “Hybrid Insurance on the Rise: A New Era for Long-Term Care Protection,” 2026, using LIMRA 2024 Annual Individual Long-Term Care Sales Survey and 2024 Annual Combination Product Sales and In-Force Survey data. ey.com
11. American Association for Long-Term Care Insurance, “2025 Long-Term Care Insurance Facts, Data, Prices and Statistics,” 2025 Price Index. aaltci.org
12. LIMRA, “Should Annuity/LTC Products Be a Bigger Part of the Conversation?” November 24, 2025. limra.com

Educational and legal disclosures

This publication is intended for general public education and nonprofit resource use. It is not tax, legal, investment, medical, insurance, Medicaid/Medi-Cal, or fiduciary advice. It is not an offer or solicitation for any insurance product. Carrier and product references are illustrative and do not imply endorsement. Product availability, state approval, underwriting, pricing, policy forms, riders, financial ratings, and tax treatment may change. Market-share figures describe new-policy counts in the cited surveys and should not be interpreted as market share of all in-force policies, premium, assets, benefits, or covered lives. Pricing examples are planning benchmarks rather than quotes.

Insurance guarantees depend on the claims-paying ability of the issuing insurance company. Long-term care benefits are subject to eligibility requirements, exclusions, limitations, elimination periods, policy maximums, and contract definitions. Life insurance loans, withdrawals, and accelerated benefits may reduce cash value and death benefit and may create tax consequences. Annuities may have surrender charges and tax consequences. A Section 1035 exchange must satisfy legal requirements and generally should be completed directly between carriers.