Long-Term Care Insurance vs. Self-Funding: The Options Are Clear - Which Is Right for You?

Long-Term Care Insurance offers a structured approach to covering the high costs of long-term care, often providing peace of mind and preserving personal assets. In contrast, self-funding relies on savings and assets, which can be rapidly depleted and may expose them to potential financial strain.

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Long-Term Care Insurance vs. Self-Funding: The Options Are Clear - Which Is Right for You?
4 Min Read August 23rd, 2023

When it comes to insurance, many people are hesitant to purchase it. They may think they don't need it, already have it, or are unsure what it costs. However, some types of insurance, such as Long-Term Care Insurance, are essential.

Long-Term Care Insurance is designed to help pay for the cost of care if you cannot perform activities of daily living (ADLs) or suffer from a cognitive disorder. ADLs include things like bathing, dressing, eating, and using the toilet. Cognitive disorders include Alzheimer's disease and dementia.

The cost of long-term care can be staggering. Home care is not inexpensive, and most care starts at home. However, assisted living and memory care are often care options people choose or require and are expensive. Nursing homes are the most costly, and the average cost of a private room in a nursing home is over $100,000 per year. And the cost of care can only go up as the population ages and the demand for long-term care increases.

In 25 years, just three years of care could run over $500,000 or more on the average side. If you linger longer, or have Alzheimer’s, it could run over $1,000,000.

How to Pay for Long-Term Care

There are two main options for paying for long-term care unless you have little or no income and assets: insurance and self-funding.

Self-funding means paying for long-term care out of your own pocket. This can be done with savings, investments, or retirement accounts. However, self-funding can be risky. If you run out of money, you may have to rely on Medicaid, which has strict eligibility requirements.

Self-funding future long-term care is riddled with potential pitfalls, making it a risky strategy for many individuals. One primary concern is the unpredictable nature of market performance. Assuming that one's investments will consistently generate the necessary funds to cover long-term care expenses can be akin to gambling with your health and financial well-being. 

Market downturns, especially if they coincide with the period when care is needed, can severely impact the available funds. And, unfortunately, the need for long-term care often arises during economic recessions when personal investments are underperforming. The unpredictability of needing care during a market downturn can jeopardize the best-laid financial plans.

Tax Issues

Additionally, using personal investments to pay for care often comes with significant tax implications. Liquidating assets to fund care can trigger capital gains tax, and depending on the amount and type of asset, this could result in a hefty tax bill at a time when financial resources are already strained. 

Moreover, draining assets means loss of potential future income from those investments reducing your lifestyle and that of your spouse. It also diminishes the inheritance that could be passed down to heirs. This double-edged sword – the loss of future income potential and the rapid depletion of assets meant for family or charitable legacies – underscores the challenges of relying on self-funding for long-term care needs.

LTC Insurance is a more predictable way to pay for long-term care. With insurance, you pay a monthly premium in exchange for a monthly or daily benefit that can be used to pay for care. LTC Insurance can also help protect your assets from being depleted by long-term care costs.

LTC Insurance Comes in Several Flavors

There are many different types of long-term care insurance policies available. Hybrid Long-Term Care policies have a death benefit, so you are guaranteed tax-free funds to pay for long-term care or a death benefit, perhaps both.

It's essential to compare policies carefully to find one that meets your needs and budget. Be sure the policy you are considering meets federal guidelines so you can enjoy the consumer protections, regulated benefit triggers, and tax incentives available through a qualified LTC policy.

If you're considering Long-Term Care Insurance, it's important to talk to someone who is a specialist in long-term care. They can help you assess your needs and find the right policy for you.

Bottom line: Don't wait to buy Long-Term Care Insurance. The sooner you buy, the more likely you are to qualify for coverage and the lower your premiums will be.

What to Consider Before Buying

Here are some additional things to consider when choosing between insurance and self-funding:

  • Your age: The older you are, the more expensive LTC Insurance premiums will be.
  • Your health: You may be denied coverage or charged higher premiums if you have a chronic health condition. Due to underwriting standards, get your coverage before you have significant health issues.
  • Your financial situation: If you have a lot of savings or investments, you may be able to self-fund long-term care, but why would you place that burden on your family and risk hundreds of thousands of dollars when you don't have to? However, LTC Insurance is vital if you have under $2 million in assets - and most of us fall into that category. 
  • Partnership LTC InsuranceMost states offer Partnership policies that provide dollar-for-dollar asset protection. Even a small policy can greatly impact you and your family.
  • Your family situation: Some adult children, especially daughters, might offer to be your future caregiver. However, this is a demanding and emotional job, and juggling a career, family, and caregivers is a huge burden. However, if you don't have children, LTC Insurance can provide peace of mind knowing that you'll have case management with someone watching out for your best interests and the peace of mind of knowing you can spend money in your retirement without regard to leaving money to pay for future long-term care.

Ultimately, whether to buy Long-Term Care Insurance is a personal decision. But it's important to weigh the pros and cons carefully before making a decision.

Chuck Greenblott, CLTC, is a specialist in long-term care and a Chartered Retirement Planning Counselor (CRPC). He has decades of experience as a financial advisor and helping clients plan for long-term care.

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About the Author

Chuck Greenblott, CLTC, is a specialist in long-term care and a Chartered Retirement Planning Counselor (CRPC). He has decades of experience as a financial advisor and helping clients plan for long-term care.

LTC News Contributor Chuck Greenblott

Chuck Greenblott

Contributor since August 23rd, 2023

Editor's Note

Planning for retirement is more than just saving money; it's about ensuring peace of mind, especially during economically shaky times. We all age, and as we do, the reality of potential health issues and their accompanying costs loom.

It's essential to anticipate these challenges, recognizing that our health and mobility might not always be on our side. Dementia, for instance, affects many, requiring additional supervision and care.

Simple daily tasks might become burdensome, necessitating external help. This help comes at a cost, be it hiring professional caregivers or relying on family members to step in. The financial strain of long-term care can be daunting. That's where Long-Term Care Insurance becomes invaluable. It offers tax-free benefits, ensuring you get the quality care you need without overburdening your loved ones. 

If LTC Insurance sounds unfamiliar, a good starting point would be the Frequently Asked Questions on LTC News. Remember, securing a policy in your 40s or 50s can mean more affordable rates thanks to younger age and better health.

Navigating the World of Long-Term Care: Why Experts Matter

Having an expert by your side can make all the difference when considering long-term care options. Not all insurance agents or financial advisors have the niche expertise this field requires. It's wise to connect with a specialist, especially one familiar with the top insurance companies, since premiums can swing widely between companies, sometimes by more than 100%. 

The most accomplished of these specialists might boast a clientele of over 500 individuals or more insured for long-term care. Experience counts and will help you find affordable coverage that fits your age and health.

By choosing to work with a dedicated expert, you not only can save money, but you can rest easier knowing that the recommendations you're receiving are well-informed. To make this journey a tad bit simpler, LTC News has resources like "Work With a Specialist." A knowledgeable specialist will tailor coverage to your unique needs, considering your age, health, and family history, ensuring you get value for every penny spent.

Be sure the professional you are working with works with top-rated insurance companies, not just one or two, so they can provide you with accurate quotes

Planning Tools and Resources Available on LTC NEWS

Preparing for what lies ahead is challenging, especially when navigating the complexities of long-term health care. It's an emotional journey, but having the right guidance can simplify the path.

A primary aim should be to ease the burden and worry that often falls on loved ones during tough times. Turn to LTC NEWS for valuable insights and information to guide your decisions.

LTC NEWS has put in place several resources, including:

You might have questions, and LTC NEWS answers many of the most asked questions here - Frequently Asked Questions. Find all the resources available on LTC NEWS - Resources for Long-Term Care Planning.

Help for Your Older Parents

If your loved one is lucky enough to own a Long-Term Care Insurance policy, be sure they use it. Sometimes families wait, thinking they can save the benefits for a rainy day. Waiting on using available Long-Term Care Insurance benefits is not a wise idea. 

If your parent or parents need help, get them the quality care they deserve. LTC NEWS can help. We have put together several comprehensive guides to help you in your process.

Start by reading our four guides -  

Get Assistance in Filing a Long-Term Care Insurance Claim

Many insurance companies have issued Long-Term Care Insurance policies over the years. Filing a claim can sometimes be complicated unless you know what to do or get expert help and assistance. 

Don't allow the claim process to stop you from using the benefits of an LTC policy. Quality care obtained early will help provide a better quality of life and reduce the risk of a deep decline and facility care. 

If you need help starting a Long-Term Care Insurance claim, LTC NEWS can help. LTC NEWS provides free assistance with no obligation to help you or a loved one complete the claims process with a Long-Term Care Insurance policy. We have teamed up with Amada Senior Care, who will do all the work - free with no obligation. 

Get help finding quality caregivers or long-term care facilities and get recommendations for a proper care plan, whether a person has a policy. - Filing a Long-Term Care Insurance Claim.

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LTC NEWS provides a range of advertising and marketing solutions designed to help you connect with your desired audience, drive website traffic, and improve your site's SEO. Leveraging our sponsored content articles can significantly enhance your website traffic, amplify brand recognition, and foster relationships with prospective customers.

Benefits of Sponsored Content on LTC NEWS

  • Drives website traffic: Sponsored content articles are placed on LTC NEWS's homepage and in other high-traffic areas of the website, ensuring that a large audience sees your message.
  • Increases brand awareness: Sponsored content articles are written in a way that educates and engages readers, helping to position your brand as a thought leader in your industry.
  • Connects with target audience: LTC NEWS's audience comprises people interested in long-term care, making it a great way to reach potential customers who are already considering your products or services.
  • Improves SEO: Sponsored content articles are written in a way that is optimized for search engines, helping to improve your website's ranking in search results.

In summary, sponsored content on LTC NEWS is a powerful marketing tool that can help you boost website traffic, SEO, brand recognition, and audience engagement.

Learn more about how LTC NEWS can help market your business, drive traffic, and improve SEO - Advertise With Us | LTC News.

Write an Article for LTC NEWS and Improve Your Website's Traffic and SEO

Writing an article for LTC NEWS can improve your website or blog's SEO and gain exposure and traffic at the same time by being a contributor to LTC NEWS. Getting your company's website URL on LTC NEWS can improve SEO by helping to increase your visibility online. 

Additionally, being on LTC NEWS can help boost your website's authority in the eyes of Google and other search engines, leading to a higher ranking in search results. 

You can promote yourself, your business, and your website or blog. It can include links to other sites, and you can share the article link once 

published on your website or social media. However, it must have editorial content exclusive to LTC NEWS and not just an advertisement.

Email your story idea or article: newsroom@ltcnews.com - LTC News Contributors | LTC News

Sharing News with LTC NEWS 

Include LTC NEWS in your press release distribution. If your group, organization, business, political committee, etc., have news to share, send it to LTC NEWS. Email - newsroom@ltcnews.com  

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