When we sit down with families, one of the most common questions we hear is: “What happens if I need long-term care someday?”
It’s a fair question—and one that hits close to home. Like many of you, we’ve seen loved ones face the challenges of extended care, whether in the home or in a facility. It can be overwhelming—not just emotionally, but financially.
That’s why we wanted to write this piece together, not from a textbook, but from our perspective as both advisors and family members. There’s no one-size-fits-all answer. Instead, there are three main approaches that retirees typically use to prepare:
- Self-Insurance
- Traditional Long-Term Care Insurance
- Hybrid Life Insurance with Long-Term Care Benefits
Each path comes with pros and cons, and the best option depends on your goals, resources, and comfort level. Let’s walk through them in plain English.
- Self-Insurance: “I’ll Just Pay Out of Pocket”
Self-insuring means you rely on your own assets to cover care if and when it’s needed. In simple terms: you’re saying, “I’ll write the check myself.”
Example: Imagine you’ve saved diligently and have a significant amount of retirement assets. If long-term care costs you $100,000 or more per year for three years, you can absorb that without derailing your overall plan.
Analogy: Think of it like choosing not to buy collision coverage for your car. You’re comfortable taking the financial hit if something happens because you’ve got the cash to cover it.
Upside:
- Full control—no insurance company involved.
- If you never need care, your money stays in your account or goes to your heirs.
- Flexibility—funds can be used however you choose.
Downside:
- Care costs can run high ($80k–$120k per year in today’s dollars). If care lasts several years, even wealthy retirees can see their nest egg shrink fast.
- Market downturns at the wrong time could make self-insuring riskier than expected.
Self-insurance works best for those with significant assets, but even then, it should be a conscious choice, not a default one.
- Traditional Long-Term Care Insurance: “I’ll Buy the Coverage”
This is what most people think of when they hear “long-term care planning.” You pay annual premiums to an insurance company, and in return, they promise to cover a set amount of care costs if you need it.
Example: A couple might each pay $3,500 annually for a policy that provides up to $200 per day for care, lasting up to five years.
Analogy: It’s like homeowner’s insurance. You pay every year, and if your house catches fire (in this case, you need care), the insurance company writes the check. If nothing happens, the money is gone.
Upside:
- Leverages your dollars—small premiums can protect against very large costs.
- Provides peace of mind, knowing you’ve shifted risk to the insurer.
Downside:
- Premiums can rise over time.
- If you never use the coverage, you’ve paid in but received nothing—the “use it or lose it” problem.
- Policies can be complex, with varying rules on what qualifies as “care.”
Traditional long-term care insurance can be effective, but it requires commitment to ongoing premiums and tolerance for the possibility of never using it.
- Hybrid Life Insurance with Long-Term Care Benefits: “Two Protections in One”
Hybrid policies have become very popular in recent years because they combine life insurance with long-term care coverage.
Here’s how it works: You either pay a lump sum or fixed premiums, and the policy gives you two layers of protection. If you need long-term care, you can draw from the death benefit to cover costs. If you never need care, the death benefit goes to your heirs.
Analogy: Think of it like buying a Swiss Army knife instead of a single blade. It’s flexible—you’ve got a tool whether you end up needing long-term care or not.
Upside:
- Not a “use it or lose it” proposition—you or your heirs will benefit either way.
- Premiums are guaranteed and won’t increase over time.
- Can be easier to qualify for compared to traditional LTC policies.
Downside:
- Requires more upfront capital than traditional policies.
- Death benefit is reduced if you use funds for care.
- May not provide as much monthly coverage as a standalone LTC policy.
Hybrid policies strike a balance, offering protection without the “wasted money” feeling some people dislike about traditional LTC insurance.
Pulling It All Together
So, which approach is best? Honestly—it depends.
- If you have significant assets and want full control, self-insurance may be the best option for you.
- If you prefer to transfer risk for a relatively low annual cost, Traditional LTC insurance may appeal to you.
- If you want flexibility and don’t like the “use it or lose it” gamble, hybrid life insurance can be an attractive choice.
Final Thoughts
Long-term care planning is one of those topics that’s easy to put off—but it’s critical to address before a crisis forces your hand. The good news is you don’t have to figure it out alone.
At Blue Financial, we’re happy to walk you through each of these options and help determine the best fit for your situation. Most importantly, our role isn’t to push you toward one strategy over another—it’s to help you understand the trade-offs so you can make a confident, informed decision.