Insure or Self-Insure for Long Term Care? – Part 1 – Long Term Care University
Long Term Care University – Question of the Month – 03/15/26
By Aaron Skloff, AIF, CFA, MBA
Q: We are concerned about the exorbitant costs for long term care. Should we insure or self-insure our long term care costs?
The Problem – Paying for Long Term Care
According to the U.S. Department of Health and Human Services, 7 in 10 people over the age of 65 will require long term care. This compares to a 1 in 340 chance of a major auto accident and a 1 in 1,200 chance of a total loss from a fire. About half the people reaching the age of 65 are expected to enter a nursing home at least once in their lifetime.
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Paying for long term care is expensive. The median cost of a private room in a nursing facility is $10,800 per month, an assisted living facility is $6,200 per month and home care is $6,700 per month. If you are 55 years old, expect to pay over two times those amounts when you are likely to need care in 25 years at the age of 80. Based on the average nursing home stay, total costs are expected to reach approximately $1,036,300 per person.
The Solution – Insure or Self Insure for Your Future Long Term Care Costs
When preparing for your long term care (LTC) costs, you should understand the advantages and disadvantages of insuring versus self-insuring (investing) for your long term care costs. Let’s compare two 55-year-old couples that are of average health and are likely to need care in 25 years at the age of 80. The Millers choose to self-insure (invest) for their long term care costs, while the Smiths choose to insure. Unfortunately, each couple will likely need long term care for five or more years in a combination of locations; including a nursing home, an assisted living facility and their own home. The only saving grace is that their costs may be $13,000 per month per person.
Self-Insure (Invest) for Your Long Term Care Costs. If the Millers invest a combined $8,000 for one year and earn 7% before taxes, they will immediately have a combined $8,000 available for LTC costs. If they invest a combined $200,000 ($8,000 X 25) over 25 years and earn 7% per year before taxes, they will have a combined $541,412 before taxes available for LTC costs, or 2.71 X the investments. Self-insuring (investing) provides a fraction of the leverage insurance provides. See the chart below.
Insure for Your Long Term Care Costs with Traditional Long Term Care Insurance. The Smiths can each purchase a Traditional LTC Insurance policy with inflation protection that would provide an approximate $10,000 monthly benefit per person in 25 years at the age of 80 and a minimum of six years each of LTC. After the Smiths each pay a combined $8,160 for one year, they will have a combined $726,000 tax free available for LTC costs. If they pay a combined $204,000 ($8,160 X 25) over 25 years, they will have a combined $1,546,284 tax free available for LTC costs, or 7.58 X the premiums. Insurance provides a multiple of the leverage self-insuring (investing) provides. See the chart below.
Insure for Your Long Term Care Costs with Hybrid Life and Long Term Care Insurance. The Smiths can each purchase a Hybrid Life and LTC Insurance policy with inflation protection that would provide an approximate $7,300 monthly benefit per person in 25 years at the age of 80 and a minimum of seven years each of LTC. After the Smiths pay a combined $8,000 they will have a combined $705,438 tax free available for LTC costs. In 25 years at the age of 80, they will have a combined $1,319,159 tax free available for LTC costs, or 6.60 X the premiums. They will also have a combined $209,084 tax free death benefit, assuming the policy’s LTC benefits are unused, or 1.05 X the premiums. See the chart below.
Or, the Smiths can purchase a Hybrid Life and LTC Insurance policy without inflation protection that would provide an approximate $7,400 monthly benefit per person in 25 years at the age of 80 and a Lifetime of LTC. After the Smiths pay a combined $8,000, they will have a combined tax free Lifetime (Unlimited) amount available for LTC costs, or unlimited leverage. They also gain a $178,173 tax free death benefit when the second person dies, assuming the policy’s LTC benefits are unused, or 0.89 X the premiums. Insurance provides a multiple of the leverage self-insuring (investing) provides. See the chart below.
Click to Enlarge
Action Step – Insure Instead of Self-Insure (Invest) for Your Long Term Care Costs
Like major medical health insurance, automobile insurance or homeowners insurance, which most people would never even consider going without, long term care insurance provides significantly more benefits for the same dollars when compared to self-insuring with an investment portfolio. Use the leverage of insurance. Purchase a long term care insurance policy and protect your assets and your estate.
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA) charter holder, Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.
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Frequently Asked Questions
Q: Should I insure or self-insure for long-term care?
The answer depends on your financial resources, health, family history, and retirement goals. Long-term care insurance transfers much of the financial risk of an extended care event to an insurance company, while self-insuring means using your own savings and investments to pay for care. Insurance can help preserve retirement assets and provide greater financial certainty, whereas self-insuring may make sense for individuals with substantial liquid assets who can comfortably absorb several hundred thousand dollars in potential care costs without jeopardizing their lifestyle or legacy. Most financial plans benefit from evaluating both strategies rather than assuming one approach fits everyone.
Q: How much money would I need to successfully self-insure for long-term care?
Self-insuring requires more than simply having a large investment portfolio. You should have sufficient liquid assets to cover potentially years of home care, assisted living, or nursing home expenses while continuing to fund your normal retirement lifestyle and preserving emergency reserves. Because care costs continue to rise with inflation and no one knows how long care may be needed, many financial professionals recommend stress-testing retirement plans against prolonged care scenarios before deciding to self-insure.
Q: Why do many people purchase long-term care insurance even if they have significant savings?
Many affluent individuals purchase long-term care insurance to protect—not replace—their wealth. Insurance can help preserve retirement income, investment portfolios, and assets intended for a spouse or heirs. Rather than risking hundreds of thousands of dollars on an uncertain future expense, policyholders exchange that unknown risk for known premiums. This can provide peace of mind while allowing investment assets to continue growing or remain available for other financial goals.
Q: What are the biggest risks of relying solely on self-insurance?
The greatest risk is that long-term care costs exceed expectations. A lengthy illness, dementia diagnosis, or multiple years of home care can quickly consume retirement savings, especially if investment markets decline at the same time withdrawals increase. Self-insuring also places all inflation risk on the individual, since care costs have historically risen over time. Without a dedicated funding strategy, retirees may need to reduce spending, liquidate investments at unfavorable times, or alter estate plans to pay for care.
Q: Is long-term care insurance worth it if I never need care?
Many people view long-term care insurance like homeowners or auto insurance—they hope never to use it but value the protection against a potentially devastating financial loss. Additionally, many modern hybrid life insurance and long-term care policies provide benefits even if long-term care is never needed by paying a death benefit to beneficiaries or allowing access to accumulated value. This feature helps reduce the concern that premiums could be “wasted” if care is never required.
Q: When is the best time to decide whether to insure or self-insure?
The best time is generally before retirement while you are still healthy enough to qualify for coverage and before premiums become significantly more expensive with age. Waiting too long may result in higher costs or health conditions that prevent you from obtaining insurance altogether. Whether you ultimately choose insurance or self-insurance, making the decision early provides more planning options and allows you to build a comprehensive strategy for funding potential long-term care expenses.
