How To Self-Insure For Long-Term Care Health Expenses (2022)

Each of us must make the decision either to self-insure for our long-term care or get long-term care insurance. Periodically, insurance salespeople have set up billboards suggesting that if your financial advisor does not recommend long-term care insurance you should sue them. However, we are not fans of long-term care insurance.

In the fantasy of long-term care insurance, for a small premium now you can insure against high medical costs later. In reality, long-term care insurance policy premiums are usually subject to a “limited right to change premium provisions” which enables providers to reprice the insurance in their favor after the fact. Furthermore, long-term care insurance only covers a limited list of health events and for a minimal amount of time. Policies are sold based on purposefully misleading statistics and last as little as 3.1 years despite being called “long-term.”

I suppose that if long-term care was your only worry in the world, then long-term care insurance might be the best answer. However, there are multiple worries in life. Will you have enough money for prescription drugs? For medical care that isn’t long-term care? For funeral expenses? If you live over age 100? If you want to travel more? If your children need financial help? If you want to own a boat?

Invested savings is the most flexible insurance, able to cover the needs and fears for which no other insurance exists.

In general, if you can self-insure, you will likely be better off.

Updates to Our “How to Self-Insure” Advice

Salespeople of long-term care insurance (sometimes abbreviated LTC

LTC
or LTCI) will tell you the percentage of people who will need long-term care. They notably do not tell you how much care those people end up needing. It turns out that the average end-of-life health care event lasts 6 months when you are 85 years old. This means requiring medical housing or regular care, like in-home care or a nursing home, for 6 months.

In 2020, we recommended:

“With 90% of people requiring 3 or less years of nursing home care, budgeting like you need three years of nursing home care should help ensure that you have sufficient money to self-insure your long-term care.

“At an average annual cost of $75,000, three years of care would cost $225,000.”

Since that recommendation, we discovered Genworth’s Cost of Care study. Each year since 2004, Genworth has surveyed medical providers to gather a database of average regional costs for common long-term care expenses. This means that you can look up how much long-term care services may cost specifically in the area where you will want care.

Statistically speaking, 60% of people never need nursing care. Of the remaining 40%, 18% stay less than 1 year, 12% stay 1-3 years, and 10% stay more than 3 years.

For this reason, if you want to self-insure, we recommend saving 3.1 years of the annual cost of a semi-private room for your area by age 85.

Requiring nursing home care is one of the more…