Personal Finance

I’m a multi-millionaire in my 40s. Should I purchase long-term care insurance?

Rich Duprey

Published: January 13, 2025 4:10 pm

Long-term care (LTC) insurance is pushed as a universally important financial tool. Because Americans live longer, meaning spending more years in retirement without the assurance of steady income, protecting yourself and your assets from devastation with LTC coverage can help avoid financial ruin. After all, healthcare costs aren’t decreasing.

Yet it might not be for everyone. Several factors, both pro and con, argue in favor of and against paying for LTC policies. And if you are wealthy, there are additional considerations to think of.

This was brought to mind by a Redditor’s post on the r/fatFIRE subreddit. He was a multi-millionaire and had heard about the benefits of long-term care insurance. He heard it was beneficial to get coverage when you’re younger, such as in your 40s, than waiting till you are older. Adding early retirement considerations into the equation made him question LTCs validity in his situation.

24/7 Wall St. Insights:

• Long-term care (LTC) insurance policies are often seen as a means of protection, both for your well-being and for your financial stability.
• Nothing is ever black-and-white, though, and especially for the wealthy, there are numerous factors to consider, both pro and con, that need to be weighed before buying.
• Also: Take this quiz to see if you’re on track to retire. (Sponsored)

The long tail of long-term care

The necessity of purchasing LTC insurance, even for a multimillionaire, hinges on factors including personal health risks, financial strategy, estate planning goals, and one’s philosophy towards financial security. 

Now I’m not a financial advisor or tax professional, so these are only my opinions, but even multimillionaires could see their wealth severely eroded by LTC costs, which can easily run into hundreds of thousands of dollars. Without insurance, these expenses would come directly out of personal assets, potentially affecting not just your financial independence, but also what you leave behind for heirs.

The expense of LTC insurance is not inconsequential. According to Genworth Financial, the average annual cost for a private room in a nursing home can exceed $120,000, while even home health care costs are substantial. If care extends over years, this can deplete even substantial wealth if you don’t plan for it.

While LTC policies are not prohibitively expensive. Premiums tend to increase with age. The American Association for Long-Term Care Insurance says the average annual premium for an LTC policy with $165,000 in benefits is around $950 for a 55-year-old male and $1,500 for a 55-year-old female. That same policy for a 60-year old male could rise to $1,200 a year, so the Redditor’s thought about buying one in his 40s makes sense.

Some of the benefits of LTC insurance include:

• Tax deductibility. Premiums can be tax deductible and benefits received are generally tax-free.
• Asset protection. Policies can maintain the value of an estate for an inheritance.
• Control over care choices. LTC insurance gives you access to better specialized care options.
• Avoid dependence on care from family. You won’t have to rely upon financial or medical assistance from family.

Not a one-size-fits-all solution

Although these factors argue strongly in favor of getting coverage, there are limitations, especially for the wealthy.

For example, it’s not certain you will ever need long-term care in your advanced years. You might be better off self-funding any potential care costs. By saving or investing for potential care needs, you can avoid paying premiums for coverage you may never use.

By getting an LTC policy, you forgo the benefits of investing those premiums elsewhere, losing out on investment returns that could be greater than the cost of future care itself, especially if one’s health remains robust into old age.

There are also alternatives available for the wealthy, such as hybrid policies that offer both life insurance and an LTC component. They provide long-term care if needed, but convert to a death benefit if not, thereby offering flexibility and potentially better use of funds.

Key takeaway

For a youthful multi-millionaire, LTC insurance isn’t strictly “essential” in the sense that they might have the means to self-fund care. However, it can be crucial for strategic reasons like estate preservation, tax advantages, ensuring quality of care, and managing financial risks associated with health uncertainties. 

The decision should be made after consulting with financial advisors, considering one’s health risk profile, family history, and broader financial and personal goals. 

If the peace of mind from insurance outweighs the cost of premiums, and if maintaining control over how care is managed is important, then LTC insurance could indeed be a wise investment.