Long-Term Care Insurance vs. Self-Funding: Pros and Cons

As life expectancy continues to rise, more Americans are thinking ahead to how they’ll handle the costs of long-term care (LTC). Whether it's help with daily activities at home, assisted living, or nursing home care, these services can come with a significant price tag. When planning for future care needs, individuals generally face two main options: purchasing long-term care insurance or choosing to self-fund their care. Understanding the pros and cons of each approach is essential to making a decision that protects your health, finances, and family.

Understanding Long-Term Care Insurance

Long-term care insurance is designed to cover expenses that traditional health insurance, Medicare, or disability insurance typically do not. Policies usually reimburse policyholders for care received in various settings such as nursing homes, assisted living facilities, or even their own home. The idea is simple: pay premiums now to access financial support later.

Pros of Long-Term Care Insurance

• ​Financial Protection: The biggest advantage is the peace of mind knowing that a major portion of care costs will be covered. With nursing home care averaging over $100,000 per year in California, even a few years of care can quickly deplete retirement savings. A well-structured policy helps preserve your assets.
• Choice and Flexibility: LTC insurance allows more freedom in choosing the type and location of care. Many policies support home care, enabling you to stay in familiar surroundings instead of moving to a facility.
• Reduced Burden on Family: Without a plan in place, family members often become caregivers by default. Insurance helps pay for professional care, easing the physical and emotional strain on loved ones.

Cons of Long-Term Care Insurance

• Cost of Premiums: Depending on your age and health at the time of application, premiums can be costly. However, applying earlier in life typically results in lower, more manageable rates.
• Underwriting Requirements: Insurers assess your health history before approving coverage. Those with existing health conditions may be denied or face higher premiums.
• Use-It-or-Lose-It: Traditional policies function like auto or home insurance—if you never need care, you don’t receive benefits. However, newer hybrid policies may offer more value with life insurance components or return-of-premium features.

Understanding Self-Funding

Self-funding, sometimes called "pay-as-you-go," means setting aside your own assets to cover future care needs. This approach might appeal to individuals with significant savings or those who are skeptical of insurance products.

Pros of Self-Funding

• No Premium Payments: You won’t be paying ongoing premiums, which can be a relief if you never end up needing long-term care.
• Full Control of Assets: Your money stays with you unless you need to use it. You decide when and how it’s spent, and there’s no need to work with an insurance company to file claims.
• Simplicity: There's no underwriting process or contractual terms. You retain full autonomy without navigating policy rules or waiting periods.

Cons of Self-Funding

• High Financial Risk: Few people realize just how expensive long-term care can be. Even those with healthy retirement savings may find their nest egg strained—or depleted—by prolonged care needs.
• Market Volatility: Investments can lose value, particularly during economic downturns. Relying solely on your assets leaves you vulnerable to timing risk.
• Lack of Leverage: Unlike insurance, which allows you to pay smaller amounts in exchange for larger future benefits, self-funding relies exclusively on your own capital. That means you may pay far more out of pocket in the long run.

Making the Right Choice

The decision between long-term care insurance and self-funding isn’t one-size-fits-all. It depends on your age, health, wealth, risk tolerance, and personal preferences. Some people opt for a hybrid approach—maintaining a solid emergency fund while securing insurance to handle more substantial costs. Others may consider newer insurance products that combine life insurance or annuities with LTC benefits.

The most important step is to begin the conversation early. The younger and healthier you are, the more options—and lower costs—you’ll have. Waiting too long could result in limited coverage or ineligibility.

Let Landau Insurance Brokers Help You Plan

​Navigating the complexities of long-term care planning is not something you have to do alone. At Landau Insurance Brokers, we specialize in helping Californians find long-term care insurance solutions that align with their goals and budget. Whether you're exploring traditional policies, hybrid options, or simply want to compare costs with self-funding, our experienced team is here to guide you every step of the way.

Contact Landau Insurance Brokers today for a personalized consultation. Let us help you protect your future and ensure that you and your loved ones are prepared—no matter what tomorrow may bring.