Self-funding Consider the Costs

There are lots of perspectives about long term care and how to pay for it.  An insurance-based strategy is the most cost efficient method regardless of what someone’s net worth. Unfortunately, many people make the decision to self-fund their long term care. 

This week, let’s use some numbers to compare the scenarios.  I am going to share number from the Care Solutions Interactive Cost of Care Map for the state of Rhode Island.  (Why Rhode Island?  It represents the lowest average cost of care in all of the northeast including PA, NY, NJ and all of New England).

Home Health Care      73,443      95,827   136,627
Assisted Living      61,212      73,155      92,778
Nursing Home   120,863   144,442   183,187
Home Health Care        6,120        7,986      11,386
Assisted Living        5,101        6,096        7,732
Nursing Home      10,072      12,037      15,266

Some other points of importance.  The rate of inflation is 2.0% and is not reflective of the current inflation trend in the state (which is higher).  Nursing home care reflects 24×7 care.   Home health care represents 44 hours of care services per week.

For a short duration claim (1 year or less), self-funding may be a good solution assuming the client has an emergency fund of $100,000.

For an average duration claim (3 years), self-funding may work for someone who has planned well and created a large emergency fund.  Remember, liquidity is important for the emergency fund.  If it is not adequate to produce $300,000+ of benefits, then a liquidation strategy might be a good idea.

For an intermediate duration claim (6 years), self funding will be a challenge for all but the wealthy.  Costs will likely exceed $750,000 as a nursing home or 24×7 home care might be utilized.  Again, a liquidation strategy will need to be executed to cover these costs.

For a true long duration event (8 years plus), self-funding could be devastating.  As noted for the self funded intermediate duration, a liquidation strategy will need to be executed.  Keeping in mind that long duration care typically is associated with cognitive issues – the total cost could easily exceed $1 million.

Remember this – statistics don’t sell, but they do help understand the impact of a decision.

One thing to consider is this – clients have experience bias.  If their lives were never touched by a family member who required care, they will likely balk at any insurance solution and opt to retain the financial risk of self-funding a care event.  On the other hand, people who have had that experience will understand the costs (physical, emotional, and financial) and will see the value of a planning discussion.

I say all of this to set up next week’s Fridays with Fisher where I share an idea for the self-funder to limit some of their exposure to potential claims.

For illustration and product assistance, please contact my internal Justin Fox at (844) 658-3725 or via email at

If you haven’t checked out this month’s Coffee Break.  Jen Wagoner, Elaine Marvin, Niki Johnson, and I discuss the OneAmerica Indexed Annuity Care product.


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