Many People Say They'll "Self-Insure." Far Fewer Have Defined What That Actually Means.

 

When David and Karen began discussing long-term care planning, they quickly ruled out the idea of purchasing long-term care insurance.

 

"We'll just self-insure," David said confidently.

 

It sounded like a sensible decision. They had accumulated meaningful retirement savings, lived comfortably below their means, and believed they could simply pay for care themselves if the need ever arose.

 

Their financial advisor asked a simple follow-up question.

 

"What does self-insuring mean to you?"

 

The room became quiet.

 

Did it mean paying for care entirely from investments? Selling part of their portfolio if necessary? Using home equity? Relying on family members before hiring professional caregivers? Had they discussed how much care might cost—or how paying for that care could affect the healthy spouse if one of them required assistance for several years?

 

Like many families, they realized they had made a decision before fully exploring what that decision actually involved.

 

Choosing to self-insure is not simply the absence of an insurance policy. It is a financial strategy. Like any strategy, it deserves thoughtful analysis, careful planning, and an honest understanding of both the opportunities and the trade-offs.

 

What Does It Mean to Self-Insure?

 

Self-insuring for long-term care generally means planning to pay for future care expenses using your own financial resources rather than relying on a long-term care insurance policy.

 

Those resources may include investment accounts, retirement savings, income from pensions or Social Security, home equity, or other personal assets.

 

For some individuals, this may be an appropriate approach.

 

For others, transferring a portion of that potential risk through insurance may better align with their financial goals.

 

The important point is that self-insuring is not the same as not planning.

 

It requires understanding how care would be funded, where the money would come from, and how those decisions could affect your retirement, your spouse, and your family.

 

Self-Insuring Is About More Than Having Enough Money

 

One of the most common misconceptions surrounding self-insuring is that the decision depends entirely on net worth.

 

Certainly, financial resources matter.

 

But the conversation often extends beyond whether someone can afford care.

 

Questions may include:

 

• If care is needed for several years, which assets would be used first?
• How would significant withdrawals affect retirement income?
• Would one spouse's care reduce the financial security of the other?
• How might prolonged care affect your legacy or charitable goals?
• Would paying privately influence the type or timing of care you choose?

 

These questions illustrate why long-term care planning is rarely just an insurance discussion. It is a retirement planning discussion, an estate planning discussion, and often a family discussion as well.

 

One Consideration That Often Gets Overlooked: Human Behavior

 

When families evaluate self-insuring, they usually focus on dollars.

 

What receives far less attention is behavior.

 

Imagine needing several thousand dollars each month for care—and knowing every dollar is coming directly from your retirement portfolio.

 

Even individuals with substantial resources may begin asking themselves difficult questions.

 

"Do I really need this much help?"

"Maybe we can wait another six months."

"Perhaps my spouse can continue handling most of it."

"Let's not spend the money unless we absolutely have to."

 

These reactions are understandable.

 

Most people spend decades learning to save carefully and spend thoughtfully. It can feel uncomfortable to begin withdrawing significant amounts of money month after month, even when those withdrawals are entirely appropriate.

 

As a result, some individuals may delay bringing in professional care, not because they cannot afford it, but because they are reluctant to spend the assets they worked so hard to accumulate.

 

Every family's situation is different, but understanding how emotions influence financial decisions is an important part of thoughtful planning.

 

Consider the Healthy Spouse, Too

 

Long-term care planning is often viewed through the lens of the individual who may eventually need assistance.

 

Equally important is the spouse who remains healthy.

 

If one spouse requires several years of care, how might those expenses affect the surviving spouse's financial security?

 

Would retirement income remain sufficient?

Would investment withdrawals increase?

Would lifestyle expectations need to change?

Would the healthy spouse feel comfortable authorizing significant monthly expenditures while also managing the emotional demands of caregiving?

 

These questions highlight why long-term care planning is often about protecting two people rather than one.

 

Care Decisions Are Not Always Purely Financial

 

Another consideration families sometimes overlook is how funding influences decision-making.

 

When care expenses come directly from personal assets, families may naturally compare every service to its cost.

 

Should we hire help five days a week or only three?

Can family members provide more assistance?

Should we postpone moving to a higher level of care?

 

These are deeply personal decisions, and there are no universally correct answers.

 

However, some families appreciate knowing that insurance benefits, when available and appropriate, may help support care decisions without requiring every conversation to begin with, "Can we afford this?"

 

Financial planning cannot eliminate difficult decisions, but it can provide additional flexibility when those decisions arise.

 

Self-Insuring May Be Appropriate for Some Families

 

None of this suggests that self-insuring is the wrong approach.

 

For some households, particularly those with substantial financial resources, self-insuring may be entirely consistent with their long-term financial objectives.

 

The key is making that decision intentionally.

 

A thoughtful self-insurance strategy typically considers available assets, retirement income, investment risk, taxes, family caregiving expectations, estate planning goals, and the potential effect that a prolonged care need could have on the household's overall financial picture.

 

Whether insurance becomes part of that strategy depends on each family's unique circumstances.

 

Long-Term Care Planning Is About Creating Choices

 

One of the greatest benefits of planning ahead is flexibility.

 

Families who begin these conversations before a health event occurs often have more opportunities to evaluate different funding strategies, compare available resources, and make decisions together.

 

Waiting until care becomes immediately necessary may limit those options.

 

The goal is not to convince every family to purchase insurance or every family to self-insure.

 

The goal is helping families understand the implications of each approach before they are forced to make decisions under pressure.

 

Questions Worth Asking

 

If you're considering self-insuring for long-term care, consider discussing these questions:

 

• What does self-insuring actually mean for our family?
• Which assets would we use to pay for care?
• How could prolonged care affect our retirement income?
• How might care expenses affect the healthy spouse?
• Have we discussed where we would prefer to receive care?
• Would we hesitate to spend our own assets on professional care?
• Have we compared self-insuring with available insurance options?
• Does our long-term care strategy fit within our broader financial plan?

 

Frequently Asked Questions

 

What does it mean to self-insure for long-term care?

Self-insuring generally means planning to pay future long-term care expenses using personal financial resources rather than relying on long-term care insurance benefits.

 

Is self-insuring the right choice for everyone?

No. The appropriate strategy depends on an individual's financial resources, retirement goals, family circumstances, risk tolerance, and overall financial plan.

 

Does self-insuring mean I don't need to plan?

No. Self-insuring is itself a planning decision and should include thoughtful consideration of how care would be funded and how those costs could affect retirement, investments, taxes, and estate planning.

 

Can paying privately affect care decisions?

For some families, paying directly from personal assets may influence the timing or amount of care they choose to receive. Every family's circumstances and preferences are different.

 

Should long-term care planning be coordinated with retirement planning?

Yes. Long-term care funding decisions often affect retirement income, investment strategies, estate planning, and the financial well-being of a spouse or family members. Many individuals benefit from evaluating these areas together as part of a comprehensive financial plan.

 

Key Takeaway

Choosing to self-insure for long-term care is more than deciding not to purchase insurance. It is a deliberate financial strategy that should consider not only whether you have the resources to pay for care, but also how those decisions could affect your retirement, your family, and the quality of care you ultimately receive.

 

Final Thoughts

 

There is no single solution that is appropriate for every family. Some individuals choose to transfer a portion of long-term care risk through insurance. Others decide that self-insuring is the better fit for their financial circumstances and personal goals.

 

The most important decision is not which strategy you choose—it is making that choice intentionally and with a clear understanding of its potential implications.

 

At Cypress Wealth Services, we believe long-term care planning is most effective when it begins with thoughtful conversations rather than product recommendations. Whether your strategy includes insurance, self-funding, or a combination of both, a comprehensive financial plan can help ensure your decisions support the retirement you've worked hard to build while protecting the people you care about most.

 

 

About the Author

 

Jim Bray, CFP® is Managing Director and Senior Financial Advisor at Cypress Wealth Services. As a CERTIFIED FINANCIAL PLANNER™ professional, Jim has spent decades helping individuals and families navigate retirement, wealth management, and long-term care planning. He believes the best long-term care decisions begin with education, thoughtful conversations, and a comprehensive planning process that reflects each family's goals, values, and financial circumstances.

 

 

Aging with Dignity is an educational series focused on helping individuals and families better understand the financial and personal considerations surrounding long-term care planning.