BUYOUT CALCULATOR
LTC Buyout Calculator: Take the Cash or Keep the Policy?
Enter the numbers from your buyout letter and your policy. The calculator shows what the cash is worth after tax, what keeping the policy will cost you, and how long a claim it takes for keeping the policy to come out ahead.
YOUR NUMBERS
The offer and the policy
How to read the result
A buyout offer trades a policy for cash. The question is how long you would need to be on claim before the policy pays you more than the cash, plus everything you would still pay in premiums. The calculator calls that the break-even claim length. If you would need care for longer than that, keeping the policy comes out ahead. If not, the cash does.
For a sense of scale: a 2022 study for the U.S. Department of Health and Human Services estimates that 56% of people turning 65 will one day need significant long-term care, meaning help with at least two daily activities or care for severe cognitive impairment. On average that need lasts 3.6 years for women and 2.5 years for men, and about 26% of women and 18% of men will need it for more than five years. Those are averages from age 65. Your own health and family history matter more than any average.
When keeping the policy usually wins
- The policy is paid up. If you no longer pay premiums, keeping it costs nothing. You are weighing the cash against free coverage.
- The benefit period is long or unlimited, or there is a strong inflation rider. Coverage like this is rarely sold today, and never at your old premium. A buyout gives up coverage you likely cannot buy back.
- You are older or already have health problems. The closer you are to needing care, the more the policy is worth to you, and the more the insurer wants it off its books.
- You may already qualify for benefits. If you need help with two of the six daily activities (bathing, dressing, eating, toileting, transferring, continence) or need supervision because of a severe cognitive impairment, ask about filing a claim before you consider surrendering.
When taking the cash can make sense
- You would drop the policy anyway. If rising premiums will push you to lapse in a few years, cash now beats walking away later with little or nothing.
- The policy is small and still costs a lot. A short benefit period with no inflation rider, paid for with years of rising premiums, can be worth less than the offer. The calculator flags it when even a maximum claim would not pay back the cash plus future premiums.
- You can comfortably pay for care yourself, and would rather stop paying premiums.
- You expect to rely on Medicaid. With few assets, policy benefits may mostly reduce what Medicaid pays rather than what you pay. Note that the cash itself counts as an asset until it is spent.
- A serious illness has shortened your life expectancy, or you need the money now.
Before the deadline
- Doing nothing usually keeps your coverage. In the Transamerica forms we read, the offer simply expires if you do not accept it. Confirm this in your letter.
- Ask whether the deadline means received or postmarked, whether your signature must be notarized, and whether you can return the form by fax. Some insurers' forms must be notarized and must arrive by the due date.
- Price the cash after tax. How buyouts are taxed is not settled, but the part of the payment above the premiums you paid is commonly assumed to be the taxable part, and more can be taxable if you deducted premiums or an employer paid them. A large payment can also make more of your Social Security taxable and raise Medicare premiums two years later. See how LTC insurance is taxed.
- Get a free second opinion. Your State Health Insurance Assistance Program (SHIP) gives free, unbiased insurance counseling. Find yours at shiphelp.org. A fee-only advisor or tax professional can check the numbers too.
More detail: The LTC buyout offer: how to weigh the cash against keeping your policy, and Transamerica's buyout offer.
How the calculator works
Cash after tax = offer − tax rate × (offer − premiums paid), with no tax if the offer is less than the premiums paid. This assumes only the amount above what you paid in is taxed. There is no IRS ruling on how buyouts are taxed, and more may be taxable if you deducted premiums or an employer paid them, so treat this as an estimate.
Value at the start of care. The after-tax cash is grown at your chosen return until the age you plan for care. Each future premium is grown the same way from the year it would be paid, because that money could have been invested instead. Premiums are assumed to stop once a claim starts; many policies waive them only after the waiting period.
Daily benefit at the start of care is today's daily benefit increased by your inflation rider for each year until then.
Break-even claim length = (cash at care + premiums at care) ÷ daily benefit at care, plus the waiting period. Benefits are treated as paid at the full daily amount every day of the claim, the most a policy can pay. Policies that reimburse actual costs, or pay only for days you receive care, can pay less.
Care statistics: ASPE (HHS), Long-Term Services and Supports for Older Americans: Risks and Financing, 2022.
Not modeled: chances of needing care at each age, partial claims, investment risk, Medicaid rules and future tax law. It is a way to see the trade clearly, not a recommendation.
Found an error? Email editor@longtermcaredesk.com.
This calculator is general education about long-term care buyout offers. It is not tax, legal or insurance advice, and it is not a recommendation to accept or decline any offer. We never sell insurance and take no carrier commissions.