Long-Term Care Insurance vs. Self-Insuring: Is Paying Premiums Worth It?
Self-insuring — setting aside investments to fund potential care costs — sounds logical, but the math often surprises families. Here is an honest comparison of LTC insurance versus a dedicated care reserve.
High-net-worth families sometimes ask whether purchasing long-term care insurance makes sense when they could simply set aside a dedicated fund for future care costs. This “self-insuring” strategy works in theory — but it requires both the discipline to maintain the reserve and the financial capacity to absorb care costs that can exceed $200,000 per year for complex long-term care needs. The comparison depends heavily on individual financial circumstances.
The Bottom Line
Self-insuring is a viable strategy only for families with very substantial liquid assets — typically $3,000,000 or more — that would not be materially threatened by even a decade of memory care or skilled nursing at $100,000–$200,000 per year. Below that threshold, LTC insurance provides meaningful protection against catastrophic care costs. Hybrid products that combine a death benefit with LTC coverage address the “I might not use it” concern while still providing protection. The right answer is an individual financial analysis, not a generic rule.
Questions Families Ask About This Decision
Financial planners generally suggest self-insuring becomes more viable above $2–3 million in liquid assets. Below that level, a prolonged care need — particularly memory care lasting 8–12 years — can meaningfully deplete the estate. Above $3 million, the risk is more manageable, though many high-net-worth individuals still purchase LTC insurance to protect assets and reduce the management burden of coordinating care financing.
When self-insurance reserves are exhausted, the family faces the same options as any other family: Medicaid (if the person meets eligibility criteria), VA benefits (if applicable), or continued private pay from other sources. A key advantage of having had LTC insurance would have been that the insurance paid for care, preserving the reserve for other purposes. Once the reserve is gone, Medicaid planning options are more limited — there is less time for advance planning.
Yes. One common approach is a “shared-risk” strategy: purchase a shorter benefit period LTC policy (2–3 years) that covers the most likely care scenarios, while self-insuring against the catastrophic long-term scenario (the 7–10-year dementia situation). This reduces premiums while providing some protection against moderate-duration care needs. Another approach is a hybrid product that leverages an existing life insurance policy or annuity.
Yes, under certain conditions. For individuals, qualified LTC insurance premiums are deductible as medical expenses to the extent they exceed 7.5% of AGI, up to age-based IRS limits ($480–$5,430 in 2024 depending on age). Self-employed individuals can deduct 100% of qualified LTC premiums. Business owners can deduct premiums paid for employees under certain conditions. Consult a tax advisor for your specific situation.
Related Comparisons
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