For millions of aging adults, finding a practical, reliable way to fund long-term care is one of the biggest challenges of retirement planning.
The options aren’t great. Many people assume Medicare will handle it — it won’t. Medicare, which typically starts at age 65, only covers costs at nursing homes or assisted living facilities for 100 days after a hospital stay.
Meanwhile, Medicaid — which does cover long-term care but is based on need, not age — requires you to spend down most of your assets before you can qualify.
Traditional long-term care insurance was once seen as a practical way to cover the sky-high cost — but it has struggled to live up to its promise.
As a result, people are now turning to other financial tools, including annuities, to help prepare for these future costs.
How annuities can help pay for long-term care
An annuity is a financial contract with an insurance company. In exchange for a lump sum or series of payments, the insurer promises to pay you a stream of income that can last for a set period or for the rest of your life.
Some annuities are specifically designed to help cover long-term care expenses, making them an option for those who may not qualify for or want traditional LTC insurance.
Unlike LTC insurance, annuities aren’t subject to medical exams or health questions, making them more accessible for individuals with existing health conditions. While some LTC annuity riders may require minor medical underwriting, it’s much less stringent than applying for a life insurance policy.
However, annuities come with plenty of drawbacks — most notably, the need for a substantial upfront investment and limited access to your funds without penalties.
The key is choosing the right type of annuity for your needs. If your goal is to prepare for future long-term care costs, there are a few ways to go about it.
Annuity with a long-term care rider
An annuity with a long-term care rider can boost your monthly income or unlock extra funds if you need long-term care. For example, if you can’t perform two or more daily activities — like dressing or bathing — the annuity might double your payouts for a set period.
Your money will earn a modest rate of return, either at a fixed rate or a rate tied to an index.
Some insurers offer these LTC riders for free, but not all. New York Life, for example, includes a living needs benefit rider or a home health care rider on its fixed deferred annuities at no extra cost. The living needs rider can waive early withdrawal penalties if you’ve been in a nursing home for more than 60 days and meet specific conditions.
Other policies, like Mutual of Omaha’s, let you access your investment — up to three times its value — for use toward nursing homes, in-home care, assisted living or adult day care. But that extra coverage comes at a price. The fee is deducted from your annuity’s return. So, if the annuity earns 4 percent annually and the LTC rider costs 1 percent, your effective return drops to 3 percent.
These hybrid annuities can be attractive because they typically involve a one-time payment and avoid the rising premiums that have crippled traditional LTC insurance policyholders. Plus, if you don’t end up needing care, you still get regular income — no “use it or lose it” scenario. If you do need care, the rider kicks in and enhances your benefits.
Craig Toberman, a certified financial planner and partner at Toberman Becker Wealth, says these kinds of annuities usually appeal to people who have seen a parent or loved one go through long-term care firsthand and want to protect their children or spouse from going through a similar ordeal.
“Behavioral factors like aversion to uncertainty, family health history and emotional experiences often drive the decision more than spreadsheets,” says Toberman.
Your annuity contract will spell out how much you can use monthly for long-term care and how long your contract must be in place before you can access the benefit.
That said, these products require a hefty upfront investment of about $100,000 or more. So they’re still not a viable solution for everyone. And like other annuities, they can come with high fees, surrender charges and inflation risk, which can eat into your returns.
“They may also have benefit caps and other limits that may not match future care needs,” says Toberman.
Still, for people who can’t get traditional LTC insurance — or who don’t want to pay for a policy they might never use — annuities with LTC riders offer an alternative.
Longevity annuity
A longevity annuity — also known as a Qualified Longevity Annuity Contract (QLAC) if purchased with funds from a retirement plan — is another way to cover late-life care.
Longevity annuities are deferred income annuities, and they begin payouts later in life — typically between the ages of 75 and 85. You invest a lump sum of your retirement savings now, the money grows at a modest rate over time and the income stream starts down the road when you may have exhausted other savings.
This can be a more affordable solution than a traditional immediate annuity. Because you’re delaying payouts, the insurer can offer a higher monthly income later.
Here’s an example. Using quotes obtained from Income Solutions, an online annuity marketplace, the lump sum premium a 60-year-old woman would need to pay in order to receive $1,000 per month in income:
- For an immediate income annuity, payouts begin at age 60 and last for life: $165,220 – $194,459
- For a longevity annuity, payments begin at age 85 and last for life: $16,801 – $22,060
Plus, since the money is locked away, you’re protecting it from being spent too soon in retirement while shielding it from market volatility.
A longevity annuity doesn’t specifically cover long-term care, but it does provide guaranteed income at an age when you’re most likely to need that type of care.
The biggest downside, like all annuities, is restricted access to your money. Additionally, longevity annuities don’t provide a death benefit to your heirs, so if you don’t purchase a rider and pass away before payouts begin, the insurer keeps the money. That’s not much different than the “use it or lose it” proposition of long-term care insurance policies, but at a much lower cost.
4 other ways to cover long-term care if annuities aren’t enough
If an annuity isn’t a good fit — or you’re interested in creating a multi-pronged plan — there are a few other options on the table.
1. Life insurance policy with an LTC rider
A life insurance policy with an LTC rider can provide a safety net. Typically available for permanent life insurance policies, these riders let you tap into the death benefit early if you are diagnosed with a terminal or critical illness.
These policies can cover LTC costs while also building cash value over time. If you don’t use the policy for care, the remaining death benefit goes to your beneficiaries.
Adding an LTC rider does increase your premiums — usually by $600 to $800 a year — but it can be higher depending on your age, health and the level of coverage you choose.
This approach has drawbacks though, as Marc Cohen, co-director of the LeadingAge LTSS Center at UMass Boston, points out.
“To be able to draw down life insurance benefits if you become disabled, it sort of defeats the purpose of life insurance,” he says. “Because if you use up all your benefits and then you pass away, well, you’ve left nothing for your family.”
2. Health savings accounts
A health savings account (HSA) can be a powerful tax-advantaged way to cover qualified LTC costs, especially if you start early and invest the funds.
But annual contribution limits are relatively low, and you need to be enrolled in a high-deductible health plan to contribute, which isn’t realistic for everyone. That’s also assuming you won’t need to tap your HSA funds to cover your current health care costs.
This makes superfunding an HSA appealing in theory, but definitely more of a long-game strategy relatively few people may be able to execute.
3. Tapping home equity
Some financial experts are encouraging clients to explore an often overlooked financial lifeline to fund long-term care: the equity in their homes.
For many older adults sitting on significant home equity, accessing that value can help bridge the gap in lieu of an annuity or insurance policy, says Toberman.
“By focusing on eliminating the mortgage as part of their long-term financial plan, we position the home equity as a flexible resource — one they can sell, downsize or tap if needed to cover these substantial expenses,” says Toberman.
Homeowners have a few ways to access their equity. Reverse mortgages get attention, but they aren’t always the go-to.
“We do explore reverse mortgages, but more often lean toward home equity lines of credit or retirement-based lending structures to avoid immediately triggering debt or reducing inheritance,” says Toberman.
Still, when push comes to shove, selling the home often wins out. But for retirees without long-term care insurance, it often ends up being a simpler solution for those who can afford it, says Toberman.
“Many times, straightforward strategies like earmarking certain assets to self-insure against future LTC expenses can help reduce the need for complex hybrid products,” he says.
4. Medicaid planning
Medicaid planning is another route, but it’s not simple. Medicaid is designed for people with a lower income and limited assets, so qualifying often requires a strategic “spend down” strategy.
Elder law attorneys and financial advisors can legally reposition your assets to meet Medicaid’s strict asset limits, but timing matters. Most states have a five-year look-back period, which means you need to plan well in advance.
“With Medicaid, you’ll get some care, but probably not the way you always want it,” says Cohen. “But at least you get something.”
Why traditional long-term care insurance is failing
Once billed as a solution to aging with dignity, long-term care insurance is on life support.
“There’s a lot of reasons why the long-term care insurance market has basically underperformed to expectations,” says Cohen. “It’s just not priced in a way that’s affordable anymore.”
When these policies began gaining popularity in the late 1990s, LTC insurance was underwritten based on flawed speculations about how many people would let their policies lapse, how long they’d live and how many would need high-cost care.
Insurance companies — like Genworth, which partnered with AARP to reach potential customers — grossly underestimated all three factors. Those miscalculations left insurers scrambling to remain solvent. Many responded by drastically increasing premiums, limiting benefits or leaving the market entirely.
That means today, even people who bought policies decades ago are facing skyrocketing premiums and reduced benefits. And if you’re trying to buy a policy now? You’re likely priced out.
For a single 60-year-old female purchasing a new LTC insurance policy with up to $165,000 in lifetime benefits and a 2 percent annual increase, the lowest premium is $3,325 a year, according to 2024 data from the American Association for Long-Term Care Insurance.
That same woman could end up spending at least $66,500 by the time she’s 80, or nearly $100,000 by the time she’s 90. And that’s assuming the insurer doesn’t hike her rates as time goes by — which it likely will. If she never ends up needing long-term care, the insurer keeps the money and her heirs get nothing.
“It’s now out of the reach of the middle class,” says Cohen. “The people who can most afford long-term care insurance are also the ones who probably could afford quite a bit of long-term care expense if they incurred it.”
But for the average person, other solutions, including annuities, may help fill the gap LTC insurance promised to fill.
Federal and state efforts to make long-term care more affordable
Despite the growing need for affordable long-term care, potential solutions at the national level feel far off. Still, several ideas have emerged.
One of the most recent policy proposals is the Well-Being Insurance for Seniors to be at Home (WISH) Act, introduced in Congress in March 2025.
The WISH Act would create a federal catastrophic long-term care insurance program. Under this plan, individuals would be responsible for the first one to five years of care, depending on their income. After that, the government would step in with a monthly benefit to help cover costs.
“It basically says, look, if you need long-term care for more than, let’s say, two years, the public sector through a public insurance program will pay for that,” Cohen explained.
That kind of shared model could lower costs, expand access and relieve pressure on Medicaid.
Cohen supports the idea, saying, “The public sector takes some of the risk and the private sector takes a different part of the risk.”
Meanwhile, Washington state has implemented a payroll tax to fund a basic long-term care benefit.
Washington’s long-term care program offers eligible residents up to $100 per day for approved expenses, with a lifetime cap of $36,500 per person, adjusted for inflation. It’s a modest program, but it reflects a growing recognition that the status quo is unsustainable.
Other states and private-public partnerships are exploring different angles, but so far, nothing has scaled nationwide.
Bottom line
For individuals and families, preparing for the high costs of long-term care means making tough financial decisions. Annuities, particularly those with long-term care riders or delayed payouts, offer one solution. They’re not perfect, and they’re not accessible to everyone. But when long-term care insurance is unavailable or unaffordable, annuities can provide a path forward.
Still, planning ahead is key. You can’t afford to wait until you need care. Working with a financial advisor is one of the best ways to explore all your options and create a custom plan to fit your specific situation and needs.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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