Retirement
Self-Funding vs. Long-Term Care Insurance: The Math Behind the $100,000 Nursing Home Bill
Self-Funding vs. Long-Term Care Insurance: The Math Behind the $100,000 Nursing Home Bill
CORE INSIGHTS
- The Gap: Medicare covers medical care but NOT custodial care (nursing homes). This leaves a massive liability ($100k+/yr) exposed to personal assets.
- Self-Funding Risk: To safely self-fund, you need a surplus portfolio of ~$400k per person. Without this, a 3-year stay can deplete the surviving spouse’s retirement.
- Hybrid Solution: Hybrid Life/LTC policies guarantee either a care benefit or a death benefit, ensuring premiums are never “wasted.”
Statistically, 70% of Americans over 65 will need LTC. Yet, few plan for it. The debate isn’t about whether you will need care, but who pays for it: an insurance company or your portfolio.
What-If Scenario: The 4-Year Dementia Event
| Strategy | Cost/Impact | Outcome |
|---|---|---|
| Self-Funded | -$432,000 (Cash) | Portfolio Depleted. Spouse Risk. |
| Hybrid Insurance | -$100,000 (Premium) | $432k Benefit Paid. Portfolio Safe. |
Visualizing the Leverage
*Figure 1: Benefit Pool vs. Premium Paid. Insurance creates immediate leverage.*
Strategic Action Steps
1
The Age 50-60 Window
Buy LTC insurance between 50 and 60. Before 50 is too early; after 65, premiums spike or health issues disqualify you.
Buy LTC insurance between 50 and 60. Before 50 is too early; after 65, premiums spike or health issues disqualify you.
2
Assess “Spousal Multiplier”
Couples should buy “Shared Care” riders. If one spouse exhausts their pool, they can use the other’s. It’s more efficient.
Couples should buy “Shared Care” riders. If one spouse exhausts their pool, they can use the other’s. It’s more efficient.
3
The Bottom Line: Who Should Choose What?
- Net Worth < $500k: Rely on Medicaid. Insurance is too expensive relative to assets.
- Net Worth $500k – $3M: The “Tweener” zone. Insurance is critical to protect the survivor’s lifestyle.
- Net Worth > $3M: Safe to Self-Fund. The portfolio can absorb the hit.
Frequently Asked Questions
Does Medicare cover nursing homes?
Generally, no. Medicare only covers short-term “skilled nursing” (rehab) for up to 100 days. It does NOT cover custodial care.
What is a Hybrid LTC policy?
It combines Life Insurance with LTC benefits. If you need care, it pays out. If you die healthy, your heirs get a death benefit.
How much assets do I need to self-fund?
Planners suggest a surplus of $300k-$500k per person earmarked solely for healthcare to safely self-fund.
Disclaimer: This content is for informational purposes only. Consult an insurance professional.