Using Home Equity Instead of Long-Term Care Insurance: A Comparison

Planning for future healthcare costs is critical. Planning ahead proactively usually has a more optimal outcome than waiting until a health need arises. Reactive planning can lead to higher costs, fewer options and a feeling of being rushed into something that you aren't comfortable with. According to the US dept. of Health and Human Services, nearly 7 out of 10 Americans age 65 or older will need some form of long term care during their lifetime. The average duration of that care is 3 years and women usually need care longer than men. 1 in 5 Americans will need care for more than 5 years. How does this care get paid for? Many people think-or hope- Medicare will pay for their needs, but Medicare doesn't cover everything. Medicare.gov details what is and what is not covered:

Medicare does not pay for custodial long-term care

This includes ongoing assistance with activities of daily living such as:

  • Bathing
  • Dressing
  • Eating
  • Using the bathroom
  • Getting in and out of bed
  • Walking
  • Medication reminders
  • Supervision due to dementia

Whether that care is provided:

  • At home
  • In an assisted living community
  • In a nursing home

Medicare generally does not cover it.

What Medicare does cover

Medicare is designed to cover medical care, not long-term personal care. It will pay for things like:

  • Short-term skilled nursing care after a qualifying hospital stay
  • Physical therapy
  • Occupational therapy
  • Speech therapy
  • Home health visits when medically necessary
  • Certain hospice services

For example, if someone breaks a hip and spends time in the hospital, Medicare may pay for a limited stay in a skilled nursing facility for rehabilitation. But once they no longer need skilled medical care and only need help getting dressed or bathing, Medicare coverage generally ends.

Filling The Gaps In Coverage

So, how are you planning to pay for the care that Medicare doesn't cover? People that plan ahead sometimes get a Long-Term Care Insurance policy and think that it will be there for them when the need arises. The costs for this are dictated by a multitude of factors like age, health and other variables but average costs per month can be hundreds of dollars. For many people, the costs for this policy (that they have a 30% chance of not needing at all), are just not feasible, especially when the basic costs of living keep rising. For the people who can afford to get a Long-Term Care Insurance policy, they expect the policy to pay out when they need it and cover the expenses that have been incurred by their health needs.

Reading the fine print in these policies is often rushed or forgotten by the time the policy is needed. Many Long-Term Care Insurance policies have requirements that must be met before the policy can be accessed. According to www.ACL.gov and www.Longtermcare.gov, Most Long-Term Care Insurance policies don't start paying until you're certified as needing help with at least two of the six Activities of Daily Living—such as bathing and dressing—for at least 90 days, or after you're diagnosed with a qualifying cognitive impairment like Alzheimer's disease.

In addition to these requirements, www.acl.gov explains that a certain period of time must pass before the policy will begin covering anything. They call this period of time the "elimination period". It is defined as "the amount of time that must pass after a benefit trigger occurs but before you start receiving payment for services." An elimination period is like the deductible you have on car insurance, except it is measured in time rather than by dollar amount. Most Long-Term Care Insurance policies allow you to choose an elimination period of 30, 60, or 90 days at the time you purchased your policy. During the period, you must cover the cost of any services you receive. Some policies specify that in order to satisfy an elimination period, you must receive paid care or pay for services during that time.

Once your Long-Term Care Insurance benefits begin:

-Most policies pay your costs up to a pre-set daily limit until the lifetime maximum is reached.
-Other policies pay a pre-set cash amount for each day that you meet the benefit trigger, whether you receive paid long-term care services on those days or not.

Many people mistakenly believe that buying a policy means it pays as soon as they need it or as soon as they move into assisted living, when in reality they must first meet the policy's benefit trigger criteria. And if you look online, there are many stories of people who say they have triggered their policy's benefit criteria and still can't get their policy to pay out. In this extreme time of need, distress and pain and suffering, the last thing you need is a fight with an insurance company, sometimes requiring attorneys and more doctors appointments.

How Home Equity Can Fill The Gap

So, how are people supposed to be in control of their care and be able to afford it? Whether you have a Long-Term Care Insurance Policy or not, one tool that is often overlooked in this conversation is the Home Equity Conversion Mortgage (HECM). If you own a home and have significant equity in that home, using a HECM to access the equity as a growing line of credit can be a lucrative financial security net for the future. Some of the benefits of using a HECM to plan for Long-Term Care needs are:

-The HECM does not require monthly mortgage payments. So if you were paying one, that will be paid off with your HECM benefit and any additional available equity will fund the line of credit and start growing for your future benefit.

-After the first year of opening the HECM line of credit, it does not require any "triggers" to be met before you can access and use your funds. So the moment a care need arises, you can use funds from your HECM to pay for it.

-The costs for the HECM are included in the mortgage and paid by your home when the home is sold. There are no ongoing out of pocket or up front costs required to access this benefit outside of the third party fees it takes to do the loan. These fees include the required counseling appointment (which is usually just a phone call) and usually costs around $150 and the required appraisal of the home (which is scheduled with an appraisal company after your loan application is started) and can range in price from around $800-$2500 depending on the complexity of your property. Most appraisals are on the lower side of that estimate. After the counseling and appraisal fees, the rest of the costs are wrapped up in the loan.

Using a HECM Instead of Long-Term Care Insurance

Using a HECM as a financial security net for Long-Term Care needs requires that at least one homeowner is age 62 or older and that a homeowner remains in home as their primary residence. So, if there is only one homeowner, they must be 62 or older and occupy the home as their primary residence for the HECM to remain open and accessible. If there are 2 or more homeowners and a need arises for them to move to assisted living or another facility for care, as long as one homeowner remains in the home as their primary residence, the HECM can be used to fund that care. Comparing this option with a Long-Term Care Insurance Policy often leads to the outcome that the HECM has a greater benefit with easier access, but every situation is different and should be compared on a case-by-case basis.

When comparing a Home Equity Conversion Mortgage vs. Long-Term Care Insurance, the core difference is this: Long-Term Care Insurance is a policy you buy in advance specifically to cover future custodial care, whereas a Home Equity Conversion Mortgage converts your existing home equity into flexible cash that can be used for any purpose- including care.

They get compared often, but they don't actually do the same job. Understanding the mechanics, costs, and data behind each option matters more than picking a universal "winner."

Here is a data-driven look at both options to help you decide which path actually protects and supports independence and preservation of dignity in your retirement.

The Core Difference between HECM and Long-Term Care Insurance: Hedging Risk vs. Accessing Assets

To make the right choice, you first need to understand the fundamental difference in how these financial tools work.

What is Long-Term Care Insurance?

Long-term care (LTC) insurance is a bet you place years in advance. You pay premiums early on, hoping that if you ever need custodial care, the policy pays out enough to cover it. You are hedging against the risk of high future medical bills, relying on the insurer to remain solvent and approve your claim when the time comes.

What is a Home Equity Conversion Mortgage (HECM)?

A Home Equity Conversion Mortgage (HECM) doesn't insure against anything. Instead, it converts the equity you have already built in your home into cash which can fund a line of credit. There are no monthly mortgage payments required as long as you live in the home, pay property taxes, maintain homeowners insurance and upkeep on the home. It is not a bet on the future; it is access to money from your home equity.

What Each Option Actually Costs

Both options come with significant costs, but they are structured entirely differently.

The Cost of Long-Term Care Insurance

Long-Term Care Insurance premiums vary widely by age, gender, and health. Based on 2026 industry data:

  • For a 55-year-old man: A traditional policy with a $165,000 benefit and no inflation protection costs roughly $950 a year. Adding a 3% compound inflation rider pushes that to $2,200 a year.*

  • For a 55-year-old woman: The same base policy costs $1,500 a year. With inflation protection, it jumps to $3,750 a year (women pay more because they statistically live longer and use more care).*

  • Waiting until age 65: Premiums skyrocket. A 65-year-old man buying a policy with inflation protection will pay around $3,280 annually.*

The Catch: Premiums are not guaranteed to stay flat. In recent years, insurers have issued rate hikes of 50% to 200% on existing policies because they historically underpriced the risk.*

*The sources of this data are at the bottom of this article.

The Cost of a Home Equity Conversion Mortgage

A Home Equity Conversion Mortgage does not have monthly premiums, but it does have costs. These include:

  • Origination fees

  • Mortgage insurance premiums (MIP)

  • Standard closing costs

These are real costs deducted from your available loan balance, so they are not out of pocket costs. However, once a HECM is in place, there is no monthly or annual bill, and no risk that an insurance carrier will decide later it cannot afford to honor your policy.

The Real Cost of Care You Need to Plan For

Whichever path you choose, you need to know what you are actually funding. According to 2026 Genworth/CareScout data, the national median costs for long-term care are:

Type of Care National Median Cost (2026) Hourly/Daily Breakdown
In-Home Care (Full Time) $80,076 / year ~$39 / hour
Assisted Living Facility $74,400 / year ~$6,200 / month
Nursing Home (Semi-Private) $114,972 / year ~$9,581 / month
Nursing Home (Private) $129,576 / year ~$10,798 / month

These staggering numbers make it clear why so many retirees are looking at their home equity as a safety net. For many households, home equity is their single largest asset. In 2026, the FHA lending limit for a HECM rose to a historic high of $1,249,125, allowing seniors in high-value homes to access significant tax-free capital.

How the Funds Can Actually Be Used

This is where the two options diverge the most, and where flexibility becomes paramount.

Long-Term Care Insurance pays out only for qualifying long-term care expenses, and only after you meet the policy's strict definition of the triggers and elimination period. Claim denial rates range from 4.5% to nearly 10% depending on the state, and disputes over eligibility are common.* Sources below

Home Equity Conversion Mortgage proceeds can be used for absolutely anything. You can use the tax-free cash for:

  • Hiring in-home caregivers (including paying family members)

  • Medical bills and prescription costs

  • Home modifications (ramps, stairlifts) to help you age in place

  • Paying off an existing traditional mortgage to free up monthly cash flow

  • Anything you think you might need that would make living at home more comfortable like a landscaper to make sure your yard stays nice, or a dog walker to ensure your companion gets the exercise they need, or a handyman, or major house cleaning and laundry services. Long-Term Care Insurance doesn't cover any of these needs.

Where Long-Term Care Insurance Makes Sense

Long-Term Care Insurance is highly effective for certain people. It generally makes sense if you:

  1. Are young and in excellent health.

  2. Have the cash flow to comfortably absorb monthly payments and future premium rate hikes.

  3. Want dedicated funds earmarked strictly for care that only fund after meeting the requirements and waiting period.

Where a Home Equity Conversion Mortgage Makes Sense

For homeowners 62 and older, a Home Equity Conversion Mortgage turns an illiquid asset into a practical, on-demand resource. It generally makes sense if you:

  1. Have significant home equity.

  2. Want absolute flexibility in how and when funds are used.

  3. Do not want to gamble on Long-Term Care Insurance premiums staying affordable for the next 20 years.

  4. Want to avoid medical underwriting and the hassle of filing insurance claims.

The Bottom Line: Long-Term Care Insurance is a hedge you buy before you need it. A Home Equity Conversion Mortgage is a way to put an asset you’ve already built to work, on your terms, when you need it. If most of your net worth is tied up in your home and you want a self-directed way to fund your aging-in-place strategy, a Home Equity Conversion Mortgage deserves a serious look.

Source note: Premium figures and the $400,500 age-85 value come from the 2025 AALTCI price index, which reports select-health sample rates calculated for Illinois that vary by state and insurer. The $3,000 to $6,000 maximum monthly benefit comes from AALTCI’s 2024 buyer data, and the roughly 60% home-care claimant share from an AALTCI summary of 2024 Connecticut Partnership long-term care claims data.

The 5.8 million covered lives, the roughly 7% of Americans age 60 and older, the 127,000 annual termination gap and the average claim rising from $110,000 in 2015 to $180,000 in 2024 come from Milliman’s 2024 industry analysis.

Care-cost figures used for comparison come from various surveys including: Assisted living ($6,200) and nursing home ($9,581 semi-private, $10,798 private) come from the 2025 CareScout and Genworth Cost of Care Survey, while memory care ($6,690) comes from A Place for Mom’s 2026 data.

Disclaimer: This article is for informational purposes only and is not financial, insurance, legal, tax, medical or purchasing advice. Long-term care insurance premiums, sample quotes, benefit amounts, inflation protection options, underwriting rules, policy exclusions, rate increases, tax-deduction limits, Medicare rules, Medicaid eligibility, carrier availability, provider policies and published insurance data can change at any time and may vary by state, insurer, age, health status, gender, benefit design, elimination period and policy terms. Always confirm current quotes, coverage details, benefit eligibility, tax treatment and contract terms directly with a licensed insurance agent, insurer, official data source, tax professional, attorney or professional advisor before buying, changing or canceling a long-term care insurance policy. Home Equity Conversion Mortgage borrowers are required to complete counseling with a HUD-approved counselor before closing. 

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