Long Term Care Asset Utilization Modeling

The idea

Families often think of long-term care as a distant facility bill. This page treats care as a draw against a single “pool of money” — cash, investments, home equity, metals, annuity and life-insurance cash values, and other assets the person is willing to count. Excludable assets (spouse excluded assets) stay out of that countable pool.

You choose the state, the setting, when care is assumed to start, how many years to model, a cost-inflation rate, an investment return, and — optionally — a traditional reimbursement or asset-based long-term care policy. The model then compares care settings and inflation riders so you can see how assets would be used.

Cost sources

• State figures are annualized from published monthly medians in the CareScout / Genworth Cost of Care Survey 2025 (tables circulated in 2026).
• Assisted living uses the community monthly median × 12.
• Nursing facility uses private-room or semi-private monthly median × 12.
• Published “home care” is typically 44 hours per week. This model uses a planning estimate of 2.8 × the 44-hour annual median for “24-hour home care.” That is a conversation starter, not a quote from an agency.

Long-term care insurance (in this model)

When Include a policy in this run is checked, choose traditional reimbursement or asset-based single premium. Traditional is treated as a tax-qualified reimbursement contract:

• Daily / monthly benefit is entered in today's dollars. Monthly is daily × 365 ÷ 12. The annual max is daily × 365 if benefits are used every day. Daily benefit is limited to $100–$500.
• Two scenarios are always compared when a policy is included: level benefits (today's daily amount never changes) versus benefits that grow under the inflation rider you pick — 3% compound, 5% compound, or 5% simple. Compound multiplies the daily benefit each year. Simple adds a fixed percent of the original daily benefit each year.
• The policy is treated as a pool of money at purchase: today’s daily benefit × 365 × the benefit period (for example $130 × 365 × 5 years). Lifetime has no dollar cap. If an inflation rider is selected, unused days are revalued at the inflated daily amount — so the remaining insurance pool grows until and during the claim. Insurance paid in a year is a draw on that pool; leftover cost is a draw on countable assets.
• Elimination period applies only to the first care year: those days are paid from the pool, then insurance begins.
• Annual premium is taken from countable assets each accumulation year after the assumed return. Premiums stop (waiver of premium) once care starts. A planning target premium uses 2.5% of countable assets or 7% of income — whichever is less (the max for traditional long-term care insurance in this model). Premiums vary by age, health, marital status, and state of issue. Discuss with your LTC Insurance Representative or financial advisor for more insights, qualifications requirements and costs.
• Insurance never pays more than that year’s cost of care. The claim is applied insurance first, then leftover cost is a draw on countable assets. Money not drawn keeps compounding. After the insurance pool is used up, assets pay 100% of cost. Any leftover after assets are gone is a shortfall.

Not modeled as underwriting or a claim decision: 2-of-6 ADL or cognitive triggers (they are described, not applied), shared-care numeric riders beyond the educational card, indemnity vs. reimbursement, restoration of benefits, or future premium-rate increases. Partnership Medicaid asset protection, spend-down, look-back, QIT, and MAPT are educational summaries you can turn on in section 4 — they are not a determination of eligibility.

Tax-qualified LTC policies

HIPAA (1996) created tax-qualified long-term care contracts under IRC §7702B. This model treats a traditional reimbursement policy as tax-qualified. It does not prepare a tax return.

• Benefits. Amounts paid to reimburse qualified long-term care services are generally excluded from income. Cash / per-diem policies are tax-free up to the IRS per-diem limit ($430 per day in 2026), or actual qualified costs if higher. Amounts above that may be taxable.
• Triggers. Qualified contracts typically require a licensed health-care practitioner to certify that the insured is unable to perform at least two of six activities of daily living for at least 90 days, or has a severe cognitive impairment, and that services are provided under a plan of care.
• Premiums. Eligible premiums may be treated as medical expenses, capped by age at year-end (2026 IRS: $500 age 40 or under; $930 ages 41–50; $1,860 ages 51–60; $4,960 ages 61–70; $6,200 age 71+). Itemizers generally deduct medical expenses only above 7.5% of AGI. Self-employed and HSA rules differ. Hybrid/linked-benefit deposits usually are not deducted the same way; qualified LTC benefits from those contracts can still be received tax-free.
• Non-tax-qualified policies may use different triggers; benefits can be taxable. This page does not model NTQ contracts.

Figures follow IRS Rev. Proc. 2025-32 for tax year 2026. Confirm with a tax professional. This is not tax advice.

LTC insurance vs long-term care funds

Long-term care funds are countable assets earmarked (or simply available) to pay care. LTC insurance transfers part of that risk to a carrier. The calculator’s “no policy” run is the funds path; checking “include a policy” is the insurance path.

• Funds keep full control and remain for heirs if care never occurs. Care is paid dollar-for-dollar from the pool, including sequence-of-return and liquidity risk. Withdrawals from IRAs or gains may be taxable.
• Tax-qualified insurance pays the claim first (up to the daily or monthly cap). Countable assets only cover the leftover, so more of the pool can keep compounding. Traditional premiums are a use-it-or-lose-it cost if no claim occurs; asset-based designs may leave a death benefit.
• Insurance requires underwriting and later benefit triggers. Funds do not. Neither path is a Medicaid spend-down calculation.

Asset-based single premium (hybrid / linked-benefit)

This option moves a lump sum from countable assets into a life insurance (or annuity) contract that can pay long-term care. It is not “use it or lose it” in the same way a traditional policy is: unused value can remain as a death benefit.

• The single premium is subtracted from countable assets at purchase and no longer earns the pool’s R.O.I.
• The LTC pool is premium × leverage (None / 1× face only, or 2×, 3×, or 4×). Monthly LTC is modeled at 2% of the face (the premium) per month — a common acceleration schedule.
• A claim draws on that pool, subject to an elimination period (0 or 90 days here). An optional inflation factor can grow the monthly cap.
• Death benefit starts at the premium and falls dollar-for-dollar as LTC is paid, down to the residual floor you pick (0%, 10%, or 20%).
• Leverage, monthly percent, and residual floors vary by age, health, and carrier. This is a planning sketch, not a quote.

The year-by-year math

1. Start with today’s countable assets (primary residence can be excluded).
2. Each year, the remaining pool is grown by the R.O.I. you entered.
3. Until care starts, deduct the LTC premium (if a policy is included).
4. Once care starts, that year’s cost equals today’s state median grown by CPI for each year from now.
5. Insurance, if in force and still within remaining benefit days, pays the lesser of inflated daily benefit and daily cost, for the insurable days.
6. The pool pays the rest, if any. Unpaid remainder is a shortfall.

Policy exclusions and limitations

This model assumes benefits are paid once care starts (after the elimination period). A real tax-qualified policy typically will not pay until a licensed practitioner certifies that the insured cannot perform two of six activities of daily living, or has a severe cognitive impairment, expected to last at least 90 days. Contracts also commonly exclude or limit the waiting period; unlicensed or informal family care unless a rider allows it; preexisting conditions; care outside the U.S.; amounts already paid by Medicare or other insurance; and, in some forms, war, self-inflicted injury, or substance use. Underwriting can decline or rate the risk. Read the outline of coverage.

What this does not do

• It does not apply taxes, surrender charges, or realtor fees.
• Homestead can be excluded from the countable pool; other exempt-vs-countable rules (vehicle, personal effects, community spouse resource allowance) are described in the Educational / Medicaid cards but are not auto-applied unless you enter them on the excludable line.
• It is not an illustration of any insurance or investment product.
• Real policies have exclusions, elimination periods, ADL/cognitive triggers, and underwriting. This model does not apply those filters to the claim.

For education and discussion only. Confirm current local rates with providers. A licensed advisor should review any actual plan.