Long-term care is one of the largest unfunded retirement liabilities most households face. The data is sobering — roughly 70% of people over 65 will need some form of long-term care, with average costs running $50K–$120K per year depending on care level and geography, and the average duration of need around 2–4 years. For a couple, the household exposure can run into $300K–$700K or more.

The planning question isn’t whether to address it. It’s how.

The three broad approaches

1. Self-insure. Reserve enough net worth that you can pay for care out of pocket if needed.

2. Insure (traditional long-term care insurance). Pay premiums during working/early retirement years; receive benefits when care is needed.

3. Hybrid (asset-based long-term care). Restructure existing assets through life insurance or annuity products that include long-term care benefits.

Each makes sense for a different household profile. Wrong choice for the wrong household is expensive.

When self-insurance is the right answer

For HNW households with substantial net worth, self-insurance is often the most economically rational choice. The threshold isn’t fixed, but a useful framework: if your net worth excluding home equity is 8–10x your annual living expenses, the math typically favors self-insurance.

Why:

  • LTC insurance premiums for a 60-year-old couple can easily run $5K–$8K/year for meaningful coverage
  • The probability-weighted expected cost of care is lower than people assume (most needs are short)
  • Insurance carriers have raised premiums on existing policies historically, sometimes substantially
  • The investment return on premiums never paid (because care wasn’t needed) is meaningful over 20+ years
  • High net worth households can sustain even prolonged care without depleting the estate

The risk: the worst-case scenario — 5+ years of high-cost facility care for one or both spouses — can run $1M+. Self-insuring requires both the assets to absorb that and the discipline to keep the assets liquid enough to deploy them.

For households at the very high end ($10M+ net worth), self-insurance is almost always the right answer.

When traditional LTC insurance still makes sense

Traditional LTC insurance has fallen out of favor — the industry has been challenging, premium increases have been common, and many carriers have exited. But for a specific household profile, it remains worth considering:

  • Net worth in the $1M–$3M range — substantial but not unlimited
  • One spouse with longevity risk in their family
  • Income stable enough to absorb potential premium increases
  • Comfortable with the tradeoff of “paying for something you may never use”

For these households, transferring the worst-case risk to an insurer at a known annual cost can be the right call. The product has flaws but solves a real problem.

The hybrid approach — increasingly popular

Asset-based LTC products combine life insurance (or an annuity) with a long-term care benefit:

  • Single premium (e.g., $100K) or limited-pay premiums
  • If LTC needed: a multiple of the premium becomes available for care (often 2–3x)
  • If LTC not needed: the death benefit goes to heirs (often equal to or greater than the premium)
  • Money-back option: many products allow surrender for the original premium

The pitch: “you don’t lose the money if you don’t use it.” The catch: opportunity cost. The capital is tied up in an insurance product instead of being invested in markets, where over 20 years it would likely have grown substantially.

For households who otherwise would self-insure but want to formalize the LTC bucket, hybrid products can make sense. They generally underperform a “self-insure with disciplined investment” approach economically, but provide certainty and simpler estate handling.

What we generally recommend

For most HNW client households (net worth $3M+ excluding home), we lean toward self-insurance with explicit reserve allocation:

  1. Identify a notional “LTC reserve” of $300K–$500K per spouse
  2. Hold those assets in a way that’s accessible — taxable brokerage with conservative allocation, or a portion of bond holdings
  3. Don’t formally encumber them, but treat them as off-limits for other purposes in planning
  4. Re-evaluate every 3–5 years as the picture clarifies (health changes, etc.)

For clients in the $1M–$3M range, we model the tradeoffs more carefully. Sometimes a hybrid product is the right tool — particularly if there’s no near-term need for the underlying capital and the household values the certainty.

For clients with very specific scenarios (a spouse with strong family longevity, a single individual with no spouse to share risk), individual LTC insurance can still be the right answer.

The Medicaid asterisk

Some planning circles emphasize Medicaid as the “default” long-term care payer. For most HNW households, Medicaid planning is not the right strategy:

  • Medicaid eligibility requires impoverishment (asset spend-down)
  • The 5-year look-back rule penalizes asset transfers before applying
  • Medicaid-eligible facilities are not the facilities most HNW households would choose
  • Estate recovery rules can claw back from heirs after the recipient’s death

For households with means, planning toward Medicaid is generally not the goal. Planning to avoid needing Medicaid is.

What actually happens

The most common outcome we see in client households: care needs arise, the spouses figure out the immediate logistics (often involving a family member in the early stages), and either home care or assisted living is funded out of regular spending and a portion of liquidated investments. Insurance, when present, becomes one of several sources but rarely covers the full cost.

The households that do best aren’t the ones with the most insurance. They’re the ones who:

  • Have enough liquid assets to handle the situation as it unfolds
  • Have clear documentation about preferences (where to receive care, who decides)
  • Have powers of attorney and healthcare directives in place — see Pilot Estate Planning
  • Have a financial advisor who has stress-tested the plan against the LTC scenario

If your plan hasn’t explicitly modeled what happens if one or both spouses need 3 years of $90K/year care starting at age 78, it’s worth doing.

General educational information about long-term care planning approaches. Insurance products vary significantly in features, cost, and carrier financial strength. Self-insurance assumes investment discipline and adequate net worth. Specific decisions should be modeled against your situation with a financial planner and, where insurance is involved, an experienced LTC insurance specialist.