Can I self-pay (or self-insure) my long term care risk?

So you are considering paying for care out of your own pocket. It is possible. There are folks who have enough resources to totally pay the cost of care out of pocket. To know if you are one of them, do the math...

COST OF CARE: Median annual cost of care in a nursing home in 2024 is $103,692 (see the full article at: Long-Term Care Statistics 2024 | ConsumerAffairs®). The cost of care is intricately tied to the cost of living (food, housing, labor), so where you live matters. Places with high cost of living may be above this amount; places with lower cost of living may be beneath that. See this public, interactive website to get the cost of care in your geographic area Cost of Care Map.

INFLATION AND TIME: The cost of care has historically doubled about every 20 to 25 years. So if your care is 20 years or farther out in time, the cost figures will be about doubled. The $103,692 average annual cost becomes $207,000 (rounded).

AVERAGE SPAN OF CARE: This number varies depending on whose data you use, but most people would agree that the vast majority of claims will be between 2 and 5 years. So if you pick the mid-ground at 3 years you have a 50/50 shot of being accurate. The cost of care for one person, then is 3 X $207,000 = $622,000 (more if you have a risk of dementia, Parkinsons, stroke, osteoporosis, or kidney failure in the family gene pool).

MATH -- Case Example: If a 60 yr old person is reading this, the math says the cost of care for 3 years will be $622,000 at age 82. In reality, it is higher than that. First, care needs increase over time and as you need more care, the cost of care rises. Second, inflation doesn’t stop just because you went into care. Each year the base level of care is still rising. A more realistic the price tag to pay for the first spouse's care is between $750,000 and $1,000,000. And that is for an average run of care, not a protracted or cataclysmic run of care.

Taxes: If $750,000 (I went with the smaller number!) isn't an attention getting number, consider the impact of taxes. If you need $1 to pay for care, typically you have to liquidate $1.40 to cover capital gains or income taxes associated with acquiring that dollar from assets. So, the $207,000/year cost actually requires you to liquidate $290,000 to net out $207,000. Your $750,000 price tag above is really at $1,050,000...for one person's care….for an average run of care.

Variable Markets: Finally, you do not get to pick when care comes knocking. When it knocks, you have to liquidate. If the market happens to be in a down swing (whether that down swing is the stock market or the housing market), then you are violating the most fundamental rule about buy low and sell high. You are simply going to have to sell at the low point and take your losses.

After the math, are you still confident you can self-pay this risk? Good!

Our question is this: why would you want to? At what level of wealth did you become comfortable overpaying for care?

The cost of insurance is usually less than $125,000 over a lifetime of ownership and ends up paying 3 and 4 times that in cost of care. In fact, a hybrid product (life/LTC or annuity/LTC) has a cash value so if you never have care you recoup all the premium to your estate. You have a stop-loss at $125K with a warranty of returning that to your estate. Why would you not want to put a stop-loss on your risk?

If you think you should review your long term care strategy, CLICK HERE. You can schedule a time with an advisor to answers…and get comparisons across companies so you can find the right strategy for you.

Stana Martin, PhD, founded Mrs LTC to provide a top-quality resource for clients and customers who need help with long term care claims or insurance comparisons.