How to Pay for Long-Term Care Using a Life Insurance Policy You Already Own

Most families find the gap at the worst possible moment — a parent comes home from the hospital needing daily help, someone calls to arrange it, and the answer comes back that Medicare will not pay for it. By then the decisions are being made under pressure, in a week when nobody has the patience for paperwork. This guide lays out what long-term care actually costs, the ways families typically fund it, and one option that often goes unexamined: a life insurance policy the family already owns and has been paying into for years.

Does Medicare pay for long-term care?

Mostly, no — and this is the single most common misunderstanding in the whole subject. Medicare does cover skilled nursing care, but narrowly. Coverage runs up to 100 days per benefit period, and only after a qualifying inpatient hospital stay of at least three days in a row. Daily cost-sharing begins after day 20, and the benefit is built around recovery: rehabilitation after a stroke, a fall, or surgery, where the goal is to get someone back on their feet.

What Medicare does not cover is custodial care — non-skilled help with the ordinary activities of daily living, such as bathing, dressing, eating, and getting from a bed to a chair. Medicare's own guidance on skilled nursing facility care draws that line clearly. Custodial care is precisely what most people mean when they say “long-term care,” and it is the category that runs for years rather than weeks. Medicare is health insurance; the help an aging parent needs at home is largely not classified as health care.

What does long-term care actually cost?

The numbers are steep enough that they reshape most retirement plans. According to the 2025 CareScout Cost of Care Survey, published by Genworth in March 2026, the national median cost of an assisted living community was $6,200 per month — about $74,400 a year. A semi-private room in a nursing home ran a median of $315 per day, roughly $114,975 annually, with a private room at $355 per day, or about $129,575.

Care at home is not the inexpensive alternative families often assume. The same survey put the median rate for a non-medical caregiver at $35 per hour, which comes to roughly $80,080 a year at 44 hours per week. Note that the survey now groups homemaker services and home health aide services together under that single non-medical caregiver category. Regional variation is wide, and the figures move with the level of care required.

Duration is the other half of the equation. The federal Administration for Community Living estimates that someone turning 65 today has almost a 70% chance of needing some form of long-term care, with women needing it longer on average (3.7 years) than men (2.2 years). Roughly 20% will need care for more than five years.

What are the usual ways families pay for care?

Savings and retirement income. The most common source, and the one that determines how long the others can be deferred. Social Security and pension income rarely cover a full month of facility care on their own, so savings absorb the difference until they cannot.

Long-term care insurance. The product designed precisely for this. The difficulty is that comparatively few people own it — premiums are meaningful, underwriting tightens with age, and many who considered it in their fifties decided against it. If a policy exists, it is the first thing to read; for most families, it simply is not there.

Medicaid. The largest payer of long-term care in the country, but it is means-tested. Eligibility generally requires spending down assets to a low threshold, and coverage comes with limits on which facilities participate. It is a genuine safety net rather than a plan, and it takes effect after most other resources are gone.

VA Aid and Attendance. An often-overlooked benefit that provides a monthly payment above the basic VA pension for eligible wartime veterans and surviving spouses who need help with daily activities. It is worth checking eligibility; it is rarely sufficient on its own.

Reverse mortgage. Converts home equity into accessible funds while the borrower remains in the home. It works best when one spouse stays put and can be a poor fit when the whole household is moving into a facility, since the loan generally comes due when the borrower leaves the home permanently.

Family contribution. Adult children covering costs directly, or providing the care themselves. This is the least visible line item and frequently the largest, paid in reduced hours, lost income, and unpaid labor.

Out-of-pocket medical bills. Alongside all of the above sit the costs Medicare does not absorb — deductibles, coinsurance, dental, hearing, and prescriptions. They rarely dominate the budget, but they steadily erode the savings that everything else depends on.

Can a life insurance policy you already own help?

Frequently, yes — and this is worth working through before liquidating other assets. If there is a permanent life insurance policy in the household, check these three options in this order.

1. An accelerated death benefit or chronic illness rider. Start here, because many permanent policies already include one at no additional premium and the owner never knew. These riders let the policyholder draw against the death benefit while still living when they can no longer perform a defined number of daily activities without help. What it costs: the money comes out of the death benefit, so beneficiaries receive correspondingly less later, and carriers apply their own definitions and caps. Read the rider schedule in the contract rather than relying on memory of what was sold.

2. A policy loan against cash value. If the policy has accumulated cash value, the owner can generally borrow against it without a credit check. What it costs: the loan accrues interest, and any unpaid balance reduces the death benefit. Left to compound for years, a loan can erode the policy to the point of lapsing, which carries its own consequences.

3. Surrendering the policy. The carrier pays out the accumulated cash surrender value and the coverage ends. What it costs: everything else — the death benefit disappears, surrender charges may apply, and the figure is often far below what policyholders expect. Our guide to cash surrender value explains how carriers calculate it and why the number so often disappoints. Surrender is the last of the three to consider, not the first.

What is a life settlement, and when does it make sense for care costs?

There is a fourth option that sits outside the carrier entirely. A life settlement is the sale of an existing life insurance policy to an institutional buyer for a lump sum. The buyer takes over the premium payments and receives the death benefit later. Lifestone is a family-owned life settlement company that connects sellers with institutional buyers — we do not purchase policies ourselves.

Two features make this relevant to care costs specifically. The proceeds are unrestricted cash — not a care benefit, not a reimbursement program, not tied to an approved provider list. The family decides what it pays for. And a settlement often returns more than the cash surrender value the carrier would pay for the same policy, because a buyer is valuing the policy on the open market rather than applying a contractual formula.

It tends to be worth exploring when the original reason for the coverage has passed, when premiums have become a strain, or when the policy is heading toward surrender or lapse anyway. If either of the last two describes your situation, our post on what happens when you can't afford premiums covers the timing, and five signs it might be time to sell walks through the circumstances where it fits. Every policy is assessed individually and outcomes vary; no result can be assumed in advance.

How could a lump sum affect Medicaid eligibility?

This deserves a straight answer rather than a reassuring one. Medicaid long-term care eligibility is asset-tested, and cash proceeds from a life settlement generally count as an available asset. Receiving a lump sum can therefore delay or interrupt eligibility until those funds are spent down — which may be entirely acceptable if the intent is to fund care directly, and a serious problem if Medicaid enrollment was the plan.

Two further points matter. Federal rules apply a 60-month look-back period before the application date, and assets transferred for less than fair market value during that window can trigger a penalty period that delays coverage. Separately, a policy's existing cash value may already count as an asset even if nothing is ever sold, so the pre-sale position is not automatically neutral either.

These rules interact with state-level variation and with individual circumstances in ways that no article can resolve. Before acting on any of this, consult an elder law attorney and your own tax professional. This post is educational and is not legal, tax, or financial advice, and nothing here is a recommendation about Medicaid planning.

What should you do first?

Three concrete steps, in order, before any decision gets made.

Request an in-force illustration from the carrier. Call the insurance company and ask for one by name. It is free, and it shows the current death benefit, the present cash value, and what premiums are required to keep the policy going. Nearly every question in this article depends on that document.

Read the rider schedule. It is in the policy contract, usually toward the back. This is where an accelerated benefit or chronic illness rider would appear, and where its conditions are spelled out. If one is attached, it may be the most direct route available.

Find out whether the policy may qualify. If the riders do not fit and surrender looks unappealing, the remaining question is what the policy might be worth on the secondary market. A short assessment establishes whether it could be eligible, and for permanent coverage our overview of how to sell a whole life insurance policy explains how the process works end to end. Knowing the answer costs nothing and makes every other option easier to weigh.