A worksheet for sizing your long-term care funding gap

Before you can decide whether long-term care insurance, a hybrid policy or your own savings is the right tool, you need a number: how much of a possible care bill could your income and assets not cover? That number is the funding gap, and you can estimate it with ten lines of arithmetic. This post walks through the worksheet with a hypothetical single retiree, then gives you the blanks to fill in. Every figure for the sample person is an illustration chosen for clean arithmetic. None is a price, a national average or a prediction about your future.

What a funding gap is, and what it is not

Long-term care means help with daily living over a long stretch of time: bathing, dressing, eating, moving around, or supervision because of memory loss. It can be delivered at home, in an assisted living community or in a nursing facility. Medicare generally pays only limited, short-term skilled care after a qualifying hospital stay and does not cover ongoing custodial help, which is why this expense lands on families. Medicaid does pay for long-term care for people who meet strict income and asset limits, and the way life insurance cash value is counted is covered in medicaid eligibility and life insurance cash value. Between those two lies the stretch most people worry about, and that is where the gap lives.

A funding gap is the amount a possible care episode would cost, minus the money you could realistically direct to it from sources other than insurance. It is not a forecast. Nobody can tell you whether you will need care, for how long, or what it will cost where you live. The worksheet is a way to put a plausible case on paper and see how sensitive the answer is to your assumptions. Three cases (a short, a medium and a long stay) bracket the problem better than one guess.

The gap also helps you ask better questions about insurance. A policy has a daily or monthly maximum, a total pool of benefits, a waiting period before it pays and sometimes a growth feature. Once you know the gap, you can see what each of those would need to be. The hybrid life and long-term care policies guide and the long-term care riders on life insurance guide explain the products themselves.

The worksheet at a glance

The ten lines, in order:

1. Daily cost today. What care would cost per day at current local prices.
2. Years until care might begin. Your planning horizon.
3. Annual cost growth. An assumed yearly rate.
4. Daily cost when care begins. Line 1 grown for line 2 years at line 3.
5. Days of care. The length of the care case you are testing.
6. Total cost of the care case. Line 4 times line 5.
7. Income you could direct to care. Income minus the living costs that continue.
8. Assets you are willing to spend. Savings and investments you would use, after setting aside a reserve.
9. The gap. Line 6 minus line 7 minus line 8.
10. The share insurance would need to cover. Line 9 divided by line 6.

Lines 1 to 4 are about price. Lines 5 and 6 are about duration. Lines 7 and 8 are about resources. Lines 9 and 10 are the answer.

The sample: Marcus, 65

Say Marcus is a hypothetical 65-year-old widower with one adult daughter. He wants to understand a care episode starting at age 75, ten years away. He is not planning to buy anything yet. He wants to know what is at stake.

Lines 1 to 4: the daily cost

Marcus calls a home care agency and an assisted living community near him and asks for their current daily rates for the level of help he might need. Suppose the quotes average out to $300 a day at current prices. That is an illustrative figure. His real input is whatever he is quoted.

He assumes costs grow 3 percent a year. That is an assumption, not a forecast; costs have moved faster and slower than that in different places and periods, which is why you should test a higher and a lower rate. Over ten years the growth factor is 1.03 multiplied by itself ten times, which is about 1.3439. So:

• Daily cost at age 75 = 300 × 1.3439 = 403.17, which he rounds to $403 a day.

The inflation and your death benefit applies the same compounding to a death benefit, and it is a quick way to check the growth factor for a different number of years or a different rate.

Lines 5 and 6: the length of the care case

Marcus tests a three-year care case, which is 3 × 365 = 1,095 days. He picked three years as a middle case, not because it is typical. He will test two years and five years in a moment.

• Total cost = 403 × 1,095. Break it into 403 × 365 = 147,095 a year, then 147,095 × 3 = $441,285.

Line 7: income he could direct to care

When someone moves into care, many of their expenses continue and some stop. Marcus lists his income at 75: Social Security of $2,300 a month and a pension of $900 a month, which is 2,300 + 900 = $3,200 a month. He estimates that $800 a month would still go to costs that continue while he is in care, such as a phone, a prescription copay, personal items and keeping up the house he would not sell right away. That leaves 3,200 − 800 = $2,400 a month for care, or 2,400 × 12 = $28,800 a year.

Over three years: 28,800 × 3 = $86,400. This treats his income as fixed in age-75 dollars, a simplification. If your income has a cost-of-living adjustment, it may grow, and if it does not, your purchasing power will shrink.

Line 8: assets he is willing to spend

Marcus has $350,000 in savings and investments in this scenario. He wants to keep $150,000 untouched as a reserve for emergencies and for his daughter. He is not counting the value of his house as spendable. That leaves 350,000 − 150,000 = $200,000 available for care.

There is no right answer on the reserve. The point of the line is to make the choice explicit. A person with a spouse at home needs to leave enough for that spouse; a person with no heirs may spend nearly everything.

Lines 9 and 10: the gap and its share

• Gap = 441,285 − 86,400 − 200,000. First, 441,285 − 86,400 = 354,885. Then 354,885 − 200,000 = $154,885.
• Share of the care cost that insurance would need to cover = 154,885 ÷ 441,285 = about 0.351, or 35 percent.

So in this three-year case, roughly one dollar in three of the care bill would have to come from somewhere other than his income or the savings he has earmarked.

Turning the gap into policy terms

A gap in dollars is not yet a policy. Insurance pays under a handful of rules, and each rule changes how big a policy needs to be.

The waiting period. Most policies and hybrid riders have an elimination period, commonly described as something like 90 days, during which you pay care costs yourself before benefits start. If Marcus's policy had a 90-day waiting period, benefits would apply to days 91 through 1,095, which is 1,095 − 90 = 1,005 days. Without a waiting period the gap would be spread over all 1,095 days, or 154,885 ÷ 1,095 = about $141.45 a day. With it, the gap is spread over fewer insured days: 154,885 ÷ 1,005 = about $154.11 a day. That is the approximate daily benefit the policy would need to pay, measured in age-75 dollars.

The growth feature. Marcus would buy at 65, but the benefit is needed at 75. If a policy's daily benefit grows by 3 percent a year compounded, a starting benefit of x grows to x × 1.3439 by age 75. Solving for x: 154.11 ÷ 1.3439 = about $114.67 a day to start. If the policy has no growth feature, the benefit stays at its starting level and he would need to start at about $154 a day to have that much available at 75, which generally means a different premium. Whether growth is built in, optional or unavailable depends on the product, so ask for it in writing.

The total pool. Many policies cap total benefits, so the pool matters as much as the daily amount. In age-75 dollars, 1,005 days × $154.11 = about $154,885, which matches the gap by construction. A pool smaller than that leaves part of the gap open; a larger one pays for longer stays.

Taxes. Benefits from a tax-qualified long-term care contract are generally excluded from income, with a per diem limit of $430 per day in 2026 according to IRS Rev. Proc. 2025-32, as noted in the hybrid guide. A tax professional can tell you how that applies to your policy.

Testing the answer: shorter and longer care

A single care case can mislead. Marcus changes only line 5 and recomputes.

The arithmetic: 403 × 730 = 294,190, and 294,190 − 57,600 − 200,000 = 36,590. For five years, 403 × 1,825 = 735,475, and 735,475 − 144,000 − 200,000 = 391,475. The income column is 28,800 × 2 = 57,600 and 28,800 × 5 = 144,000.

Two things stand out. The gap does not grow in step with the length of care; it grows faster, because income and assets are fixed while cost keeps running. From two years to five, the care bill rises by 735,475 − 294,190 = $441,285, but the gap rises by 391,475 − 36,590 = $354,885. And the short case shows a gap small enough that Marcus might reasonably decide to self-insure it, while the long case leaves a gap larger than all the savings he set aside to spend.

That spread is the real finding. It means the question is not whether to cover the average case, but how much risk of a long stay you are willing to carry yourself. People differ on this, and neither answer is wrong.

What to do with the gap

With a gap and a range, there are several honest paths, and each has trade-offs.

• Self-fund. Keep the money earmarked and accept that a long stay could exhaust it. This preserves flexibility and avoids premiums, but exposes the household to the long tail. A spouse or heirs may bear the consequences.
• Buy traditional long-term care insurance. Usually the most coverage per premium dollar, but premiums on many in-force policies have been raised by insurers, and nothing is returned if care is never needed, as the hybrid guide discusses.
• Buy a hybrid life and long-term care policy. A permanent policy or annuity with a care benefit gives a death benefit or return of premium if care is never used, usually at a higher cost per dollar of care benefit. See a hybrid policy or self-funding long-term care: how to decide for how to decide between the last two paths.
• Use an existing policy. Some existing policies carry a chronic illness rider or allow an accelerated death benefit, which advances part of the death benefit for care. The chronic illness riders vs long-term care riders guide explains the differences. Another route is moving an old cash value policy into a care product, which is the subject of the turning an old cash value policy into long-term care coverage post.
• Plan for Medicaid eligibility. Rules vary by state and are the territory of an elder law attorney, not a worksheet.

Whichever way you lean, compare the cost of the cover against the gap it would fill. If the premiums over many years would add up to more than the gap, you are buying peace of mind and tail protection rather than saving money, which is a legitimate reason, but one worth stating plainly.

What this worksheet leaves out

Be honest about the limits.

• A spouse or partner. For a couple, redo lines 7 and 8 with two people in mind: one may need care while the other still needs income and a home. The surviving partner's needs usually shrink the "willing to spend" line.
• The home. A house can be a resource, through a sale, a reverse mortgage or renting it, but it also may be the place a spouse lives. Treat it as an explicit decision, not an automatic asset.
• Taxes on withdrawals. If you draw from a tax-deferred retirement account to pay for care, the withdrawals may be taxed. Care costs may be partly deductible as medical expenses in some situations. A tax professional can model it.
• Family care. Many families provide unpaid care. The worksheet prices professional care, so a plan that relies on family should say so openly and have a backup.
• Cost growth within the care period. The sample prices every day at the age-75 rate. In a five-year case, later years would cost more.
• Where you live. Prices differ widely across regions and settings. Quote real local providers, not a national figure.

For a broader timeline of when to do what, see long-term care planning from age 55 to 85: what to do and when.

Your blanks

Fill in the right-hand column. Use the formulas as written. The blanks split the overview's line 4 into two steps, so they run to eleven lines.

Run it three times: a short, a middle and a long care case. Then run it once with a higher growth rate. If the answers cluster, you have a stable picture. If they scatter widely, your plan depends on how long care lasts, which is a risk to be named.

A fee-only financial planner can check your assumptions, and an insurance agent or your state insurance department can explain a specific policy's terms. The worksheet's job is to make that conversation concrete.

Key takeaways

• The funding gap is the cost of a plausible care case minus the income and savings you would actually direct to it. It is an estimate for planning, not a forecast.
• In the illustrative example, a three-year case at $403 a day costs $441,285, and after $86,400 of income and $200,000 of earmarked assets the gap is $154,885, or about 35 percent of the bill.
• Policy terms change the sizing: a 90-day waiting period shifts the needed daily benefit from about $141 to about $154, and a 3 percent growth feature lowers the starting benefit to about $115.
• The gap rises faster than the length of care, so test a short, a middle and a long case before deciding how much risk to keep.
• Self-funding, traditional cover, a hybrid and an existing policy all have costs and limits; compare each against your gap rather than against a sales figure.