Long Term Care Planning Options and Tradeoffs
Why long term care deserves a plan
Long-term care is one of the toughest things to plan for. Everyone knows it’s expensive, but very few people actually want to talk about it. It’s uncomfortable, it’s emotional, and the numbers are hard to wrap your head around.
Here’s the reality: costs have risen faster than almost everything else. I usually model 5% annual inflation for long-term care expenses, compared to about 3% for everything else. Honestly, I have concerns that’s not enough.
There aren’t many perfect solutions because the care itself is expensive — and the need for it is unpredictable. You might never use it at all, or you might need it for several years. It’s one of the biggest wild cards in retirement.
That’s why, in many cases, people prefer to self-insure — to plan for it using their own assets.
Traditional insurance transfers part of the risk
The average stay in long-term care is around two and a half years. Some people never need it. A small percentage need it for much longer. The challenge is figuring out which group you’ll fall into, and of course, none of us know that ahead of time.
There are really three main ways to handle long-term care costs. Each has its own pros, cons, and tradeoffs — and none of them are perfect.
Traditional long-term care insurance is the old-school option. These policies are what most people think of when they hear “long-term care coverage.” You pay ongoing premiums, year after year, for a set monthly benefit if you ever need care.
The problem is, these policies were built on bad math. Insurance companies drastically underestimated how much care would actually cost. They also didn’t expect people to live as long as they do now — or to hold onto their policies for decades. The result? Many of those old policies have become financial headaches. Premiums have gone up dramatically, sometimes doubling or tripling. What people thought they bought years ago and what they actually have today are two very different things.
Traditional long-term care insurance can still make sense in certain situations, but it’s not what it used to be. The ongoing premium increases, limited flexibility, and “use it or lose it” structure make it a tough sell for a lot of retirees.
Hybrid policies combine several benefits
Then there are hybrid long-term care policies. These combine life insurance and long-term care coverage into one product. You might pay $100,000 upfront — a lump sum — and in exchange, you get $300,000 to $700,000 in long-term care benefits. If you don’t end up needing the care, your family gets a smaller death benefit, usually a little more than what you put in. The insurance company must win overall or they wouldn’t be in business, and they win by giving many people back a very modest return while holding your dollars for a long time.
Hybrids fix one major problem: you no longer lose all your premiums if you never use the benefit. But they create another: your money is now tied up in an insurance policy that rarely keeps pace with what that same money could have earned if it were invested.
You’re paying for certainty, and that certainty isn’t cheap.
These policies can make sense for some people — especially those who want to set aside a specific bucket for care and don’t like the idea of ongoing premiums. But you need to go into it knowing the tradeoffs. You’re giving up flexibility and long-term growth potential for predictability and peace of mind.
Self funding requires sufficient resources
The third approach — and one that people often look at when considering insurance solutions — is life insurance with a long-term care rider. It’s simple and flexible.
Let’s say someone has a $500,000 life insurance policy. With a long-term care rider, they can access that death benefit while living — maybe $20,000 a month — until the full amount is used for care. If care is needed, it’s there. If not, the family receives the full death benefit upon death.
There’s no “use it or lose it.” You’re simply utilizing the same dollars during your lifetime.
It’s not perfect, but it avoids the biggest frustrations of traditional policies — the unpredictable premium hikes and wasted dollars — while keeping more flexibility than hybrid versions.
Government programs have important limits
Because our firm operates strictly under a Fee-Only model, we do not sell insurance policies or collect sales commissions on any of these products. Our role when discussing long-term care is to give you an objective, independent analysis of whether self-insuring, exploring insurance solutions through an independent agency, or relying on asset location makes the most sense for your broader retirement plan.
Here’s the truth: there’s no perfect answer to long-term care. Every option comes with tradeoffs — cost, flexibility, and control. Some give you peace of mind but eat up your liquidity. Others give you flexibility but require you to take on more risk.
That’s why many choose to self-insure. That doesn’t mean ignoring the problem — it means planning for it on your own terms.
If you have a solid retirement income plan, you can carve out part of your portfolio for potential long-term care needs. You grow those dollars over time, knowing they’re there if you ever need them. If you don’t, they stay in your estate. Nothing’s wasted, nothing’s locked up, and you keep full control.
It’s not the right fit for everyone. Some people simply don’t have enough assets to absorb the cost of several years of care, and in those cases, an insurance policy can make sense.
Choose an approach that fits the full retirement plan
For many, especially those with well-structured retirement plans, self-insuring ends up being a viable solution.
Here’s another thing many people overlook: if you’re retired and your home is paid off or you have significant equity, your home might actually be your long-term care backup plan. If you move into a facility, the house can be sold and the proceeds used to pay for care. If you’d rather stay where you are, a reverse mortgage is an option. I’m not someone who recommends a reverse mortgage lightly and I do not offer them, but they’re not always as bad as people think. How else can you stay in your home and unlock a large bucket of liquidity for care?
The biggest mistake you can make is pretending the issue doesn’t exist. Ignoring long-term care planning can undo decades of smart saving and investing. It’s one of those things that’s easy to postpone — right up until it’s too late.
A realistic, flexible plan beats hoping you’ll never need care. The goal isn’t perfection. It’s preparation. The right plan doesn’t just protect your finances — it protects your independence, your dignity, and your family.
