Compare LTC insurance to self-insurance based on expected care duration, cost, and your assets.
Better strategy
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Total expected care cost
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Total premium paid
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Insurance benefit (covered)
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Out-of-pocket if insured
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The risk most retirement plans ignore
Long-term care is the expense that quietly undoes otherwise solid retirement plans. The Department of Health and Human Services estimates that about 70 percent of people turning 65 will need some form of long-term care, and the average period of care runs roughly three years. Medicare does not cover extended custodial care, the kind of help with bathing, dressing, and eating that most people eventually need. That leaves three ways to pay: insure the risk, self-insure from your own assets, or spend down to qualify for Medicaid. This calculator compares the first two head to head so you can see which costs less under your own assumptions.
Insuring a three-year stay
The defaults model a realistic scenario: care that costs $100,000 a year for 3 years, a policy with a $3,500 annual premium paid for 25 years, and a daily benefit of $250. The tool totals the cost of care, the lifetime premiums, the share the policy actually pays, and what you would still owe out of pocket if insured.
| Figure | Amount |
|---|---|
| Total care cost ($100,000 times 3 years) | $300,000 |
| Total premiums ($3,500 times 25 years) | $87,500 |
| Insurance benefit ($250 times 365 times 3) | $273,750 |
| Out of pocket if insured (gap plus premiums) | $113,750 |
| Cost if you self-insure | $300,000 |
| Advantage of insuring | $186,250 |
The daily benefit covers $91,250 a year, just short of the $100,000 cost, so the policy pays $273,750 of the $300,000 bill and leaves a $26,250 care gap. Add the $87,500 of premiums you paid over the years and your total outlay as an insured person is $113,750, against $300,000 if you pay the whole stay yourself. Under this scenario insuring wins by $186,250. The result flips the moment you assume you never need care at all, in which case the $87,500 of premiums is pure cost, which is the gamble at the heart of every insurance decision.
Where you sit on the net-worth map
The buy-or-skip answer depends heavily on your assets, and the math splits roughly into thirds. Households below about $200,000 in net worth often cannot afford premiums and would qualify for Medicaid after a relatively short spend-down, so insurance frequently does not pencil out. Very wealthy households, those comfortably into the millions, can absorb even a long care episode from their portfolio and may rationally self-insure to avoid premiums and the risk of future rate hikes. The middle, roughly $200,000 to $2 million, is the classic insure zone, because a multi-year stay could wipe out the estate yet the premiums are affordable. My practical tip: look hard at hybrid life-and-LTC policies if you dislike the use-it-or-lose-it nature of traditional coverage, since they pay a death benefit if care is never needed.
Why does the daily benefit leave a gap?
A $250 daily benefit equals $91,250 over a 365-day year, which falls short of $100,000 of annual care, so the policy never fully covers the bill in this example. Long-term care costs have also historically risen faster than general inflation, which is why insurers sell inflation-protection riders that grow the daily benefit over time. Those riders raise the premium but keep the benefit from eroding over the decades between buying the policy and using it. Model a higher daily benefit in the tool to see how much of the gap closes.
Can long-term care premiums be tax deductible?
Premiums for a tax-qualified long-term care policy count as deductible medical expenses, subject to an age-based annual limit set by the IRS and to the 7.5 percent of adjusted gross income floor that applies to all medical itemizers. In practice the deduction helps mainly older taxpayers with high premiums who already itemize. Benefits paid by a qualified policy are generally received tax free. Confirm the current year's age-based limits before relying on the deduction, because they adjust annually.