Choosing to self-insure long-term care can make sense if your savings can pay for a long stay and still meet a spouse’s needs and your other goals. Test it against local costs and how long care could last. Then compare it with the cost of moving part of the risk to an insurer.
If you have built up substantial savings, you may have been told you can self-insure long-term care. That can be true. It depends on how long care lasts, where it happens, and what else your savings have to pay for while it does.
The question is not whether you could write the check for one year. It is whether the plan still holds if care runs four or five years, markets fall in the middle of it, and a spouse still needs income for decades after. You have three ways to pay: your own savings, a hybrid policy, or a traditional long-term care policy. Some households use a mix.
What Does It Mean to Self-Insure Long-Term Care?
Self-insuring means you pay for care from your own savings and income instead of buying a policy. You keep control of the money and owe no premiums. You also carry the full cost of a long stay yourself, including the risk that care lasts longer than you planned.
Long-term care means help with daily activities such as bathing and dressing, or supervision because of dementia, at home, in assisted living or in a nursing home. It is different from medical care after a surgery or a hospital stay.
What Long-Term Care Costs Today
Costs vary widely by state and city, but national medians give a starting point. These figures come from the CareScout 2025 Cost of Care Survey.
| Type of Care | 2025 National Median, per Year |
|---|---|
| Nursing home, private room | $129,575 |
| Nursing home, semi-private room | $114,975 |
| In-home caregiver | $80,080 |
| Assisted living | $74,400 |
| Adult day health care | $24,700 |
Length of care matters as much as price. According to the federal Administration for Community Living, someone turning 65 today has almost a 70% chance of needing some type of long-term care. Women need care for 3.7 years on average and men for 2.2 years, and about 20% of people turning 65 will need it for more than five years.
Medicare may cover up to 100 days of skilled nursing care after a qualifying hospital stay, but it generally does not pay for custodial care, which makes up much of long-term care. Medicaid pays only after your assets are spent down, and it looks back five years at gifts and transfers.
RETIREMENT ENGINEERING™
The Order Matters
Five retirement decisions and why timing matters.
Three Ways to Pay for Care
Paying From Your Own Savings
Self-insuring keeps your options open. You choose the care and pay no premiums. Anything you never spend on care stays available for you or your heirs.
The risks are a long claim and bad timing. A four-year stay in a private nursing home room at today’s median would cost more than $500,000 before any price increases. If that bill arrives in a down market, you may be selling investments at low prices to pay it. And if one spouse needs care, the other still needs a full household budget at the same time.
A Hybrid Life or Annuity Policy
A hybrid policy pairs life insurance or an annuity with long-term care benefits. If you need care, the policy pays toward it. If you never do, a death benefit generally goes to your heirs. Many hybrid designs fix the premium when you buy.
The trade-off is cost and liquidity. You commit a sizable amount up front, and the care benefit per dollar is often lower than a traditional policy would offer. Getting money back out early can mean surrender charges or a smaller payout, depending on the contract.
A Traditional Long-Term Care Policy
Traditional coverage tends to buy the largest care benefit for the premium. It pays only if you need care, and if you never do, the premiums are gone. Premiums are not locked, and insurers can raise rates with state approval. You also need to qualify on health, so waiting until a diagnosis can take this option off the table.
You do not have to choose only one. A smaller policy can cover the first years of care, or a set share of the daily cost, while your savings carry the rest. A longer waiting period before benefits start can also lower the premium if your savings can cover the early months.
Five Steps to Decide
- Price care where you would want it. Use costs for your own area and the setting you prefer, at home or in a facility. The gap between the two can be large.
- Test a long stay, not an average one. Model three years, then five or more. Run it with a market decline early in the stay to see what you would have to sell.
- Check what a spouse would be left with. One partner’s care can run for years while the other still needs income. The plan has to fund both households at once.
- Price coverage while you are healthy. Get quotes for a hybrid and a traditional policy in your fifties or early sixties, before health changes can limit your choices.
- Decide which money pays first. Care paid from an IRA, a taxable account or a home sale each carries different taxes. Settle the order before you need it.
Care costs belong inside your retirement income planning. A care reserve changes how much you can spend in the early years of retirement, and it changes which accounts you draw from first. Your withdrawal strategy should account for it.
Tax and Funding Considerations
Tax-qualified long-term care policies may receive favorable tax treatment. Health savings account money can sometimes pay qualified premiums. An old life insurance policy or annuity you no longer need can sometimes be exchanged into long-term care coverage without current tax.
How Holland Capital Approaches the Decision
We start with the amount of long-term care risk your financial plan can absorb on its own. That means testing local care costs against your spending, your accounts, your spouse’s needs and the possibility of a long claim during a weak market.
Then we compare that risk with the cost of transferring part of it to an insurer.
Sometimes the plan can comfortably carry the risk. Sometimes insurance makes sense. Often the better answer is somewhere in between.
The goal is not to buy the most coverage or avoid insurance altogether. It is to decide how much of the risk you can afford to keep and how much is worth transferring.
Is Holland Capital Management the Right Fit for You?
Start with a 15-minute Clarity Call. We will talk through your situation, what you are trying to solve, and whether working together makes sense.
Frequently Asked Questions
How Much Money Do You Need to Pay for Care Yourself?
There is no single number. It depends on where you would receive care, how long it lasts, and what your savings must still pay for. A useful test is whether your plan still works after a five-year stay at local costs, with a spouse still needing income. That test belongs inside your broader retirement planning.
Does Medicare Pay for Long-Term Care?
Generally, no. Medicare may cover up to 100 days of skilled nursing care after a qualifying hospital stay, but it does not cover custodial care when that is the only care you need.
Are Long-Term Care Insurance Premiums Tax Deductible?
Partly, for tax-qualified policies. Premiums count as a medical expense up to an age-based limit, and the deduction helps only if you itemize and your total medical expenses are high enough to clear the IRS floor.
