November 2, 2026 - A friend mentions she just bought a long-term care policy. Or someone is trying to sell you one. Now you are wondering whether you need one too.
In this article, we are going to go over some things you should consider before you buy a policy and, at the end, discuss a significant tax savings opportunity that many people don’t consider. We do not sell long-term care insurance, so we have no financial incentive to favor one approach over the other. Our purpose is to help families think clearly about financial decisions.
Long-term care does require a plan. Buying insurance is only one way to plan for it. You can insure the risk, pay for care from your own resources, or use some combination of the two.
Who Needs Long-Term Care Insurance?
The purpose of insurance is to transfer a financial risk that would be difficult to bear yourself. Long-term care is a risk that should be planned for. Here are some reasons families choose to buy insurance to cover this risk:
If there are not expected to be enough financial resources later in life to pay expenses out of pocket, an insurance policy may be attractive. Even if there are “enough” resources, some families buy insurance to “protect” an inheritance that will go to the next generation.
Single individuals and small families may see long-term care insurance as necessary if there are not other family members to lean on during care.
Families with coverage sometimes appear more willing to bring in professional help because the expense feels as though it is being paid from insurance ("other people's money") rather than directly from family assets. A common example is one spouse needing significant care while the other gradually becomes the full-time caregiver. The healthy spouse may continue trying to manage alone long after some additional help would improve life for both of them. Long-term care insurance can make it easier for some families to accept that help sooner.
A family with enough assets and reliable income may be able to absorb several years of care. A family with less financial flexibility may prefer to transfer some of that risk to an insurance company.
Should You Self-Insure Long-Term Care Risk?
Self-insuring means taking the chance and paying for care from your own resources. For families with sufficient financial resources, retaining the risk is worth considering.
A question is whether paying for care directly would be financially unbearable. Pension income, Social Security, rental income, and other income may continue after someone moves into care, while many ordinary living expenses decline.
A family may see an assisted-living or nursing-care bill and assume the entire amount represents new spending. Often, other expenses fall at the same time.
A client once told me that a nursing home is an "all-inclusive resort." His choice of words was memorable because there is some financial truth behind it. Groceries, utilities, transportation, home repairs, travel, and other recurring costs may decline substantially when someone moves into a care facility. The care bill may be significant, while the increase in the family's total spending may be considerably smaller.
Is There a Tax Opportunity in Paying Out of Pocket?
One part of this decision is often overlooked: paying long-term care expenses out of pocket can also create significant tax opportunities. Qualified long-term care expenses may be deductible as medical expenses.
For families with high taxable income, or with significant savings in deferred accounts that will eventually be taxed, those deductions can create planning opportunities. Larger IRA distributions or Roth conversions (moving money from a traditional IRA to a Roth IRA and paying the tax now) may be timed for years with unusually high medical deductions resulting in little or no tax paid on traditional IRA withdrawals. This can be a multi-generational tax benefit for the family.
This tax savings opportunity should be considered when evaluating the cost of paying for care out of pocket.
How Will You Plan for Long-Term Care Risk?
Ask yourself these questions:
Do I need to transfer this risk because I am not willing to bear it?
If I have long-term care expenses, what other expenses will go down?
Could my income continue to cover a meaningful part of the cost?
Am I a good candidate to take advantage of significant deductible medical expenses?
How will my family feel about paying for care out of pocket?
Will my family understand that paying for care may be exactly what our assets are there to do?
If I buy insurance, am I willing to bear the cost of the premiums?
Planning for long-term care risk requires some thought. These questions help frame your decision. There is a saying about long-term care insurance: “If you can afford it, you don’t need it. And if you need it, you can’t afford it.” Making a decision about buying insurance requires a thoughtful approach.
If you would like to have a conversation about how planning for long-term care risk fits into your financial plan, schedule a conversation with one of us or email me at bryan@timberchase.net.