A decision on whether to buy long-term care insurance or take on that future cost burden yourself can easily be a million-dollar question. The answer is not solely dependent on wealth – it can differ based on personal circumstances.
Those who are financially well off generally are able to self-fund long-term care. Nonetheless, the potential for large, open-ended costs makes advance consideration important.
An estimated 80% of 65-year-olds will require long-term care at some point over their remaining life, according to the Center for Retirement Research. While the amount and duration of care will vary, about 40% will need high-intensity care for more than a year and 20% will need it for more than five years.
Even for those who can easily afford them, costs are not insubstantial. The median annual costs in 2024 were $127,750 for a private room in a nursing home – over $200,000 in some cities – $77,792 for home health aides, and $70,800 for an assisted-living facility, according to insurer Genworth Financial.
A worst-case scenario involving Alzheimer’s disease or dementia could entail a decade or more of full-time care at an expense well over $1 million. Nearly 7 million Americans had Alzheimer’s in 2024, according to the Alzheimer’s Association – almost all of them age 65 and older – and the number continues to rise rapidly.
Even those who could afford to handle enormous long-term care costs themselves should talk to their adviser about insurance options, especially given the wide range of potential outcomes. Some may wish to consider it as extra protection for their bequests to heirs or, if they have a family history of Alzheimer’s, to cover those future costs.
“Financially, it makes sense for a majority of our high-net-worth clients to self-insure,” said J.
Gus Miller, associate director at Altair. “Having said that, there are several
psychological/behavioral reasons to consider long-term care insurance.”
Those reasons include:
- Care choices – Clients may be more willing to add additional services / higher-end treatment if part of the cost is already covered by insurance.
- Loss aversion – It may be easier to have a third party handle the costs than for a client to take money out of the portfolio each month.
- Care sooner – Those who have invested in insurance may be inclined to see caregiving services at the earliest stage of need, including home care.
While long-term care insurance can be very expensive over time, we at Altair have seen our clients’ premiums stabilize after a period of steep industrywide increases. Another plus: Long-term care products with built-in guarantees and enhanced consumer protections have become available, according to Alana Kahan, president of Chicago-based insurance advisory firm 1706 Advisors. For example, policy provisions can be included that pay out unused funds as a death benefit. Also, some Altair clients have purchased life insurance products with riders that make funds available in the event of a long-term care need.
Bottom line: Planning ahead for long-term care can be easy to put off, given the needs for wealth management and estate planning that generally take precedence. But costs can potentially be huge, and building them into your big-picture financial outlook can be important for both wealth preservation and your family’s legacy. Even with self-insuring as a reasonable option, it is worth talking to your adviser to get your plans in place.
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The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice. Although we made efforts to verify the accuracy of the information, Altair Advisers cannot guarantee its accuracy. Please see Altair Advisers’ Form ADV Part 2A and Form CRS at https://altairadvisers.com/disclosures/ for additional information about Altair Advisers’ business practices and conflicts identified.