High-earners often spend years building their wealth, diversifying their portfolio with savings, investments, retirement accounts, real estate equity, estate plans, and more to leave behind a legacy for their loved ones.
Unfortunately, that legacy could become at risk if you need long-term care.
Many think they can fund their care out of pocket, but that cost can quickly add up. However, without a plan, securing long-term care can create a major financial disruption, draining your savings, even for families with significant assets.
Below, we’ll discuss the benefits of long-term care insurance and how it can help you secure your family’s financial future and set the next generation up for success.
Why Long-Term Care Planning Matters for High Earners
The good news is that high earners may be more financially prepared than many households. They have more assets and income, which is why many believe they can simply fund their future care needs out of pocket.
However, that also means you have more to protect. Long-term care insurance can help you do that, including:
- Preserving your retirement income allows you to spend or allocate your money for your lifestyle, separate from your caregiving expenses.
- Reducing the need to liquidate investments, so your money can continue to make money.
- Supporting a more predictable financial plan, putting you in control of how you fund your long-term care needs.
Long-term care insurance provides a safety net, allowing you to secure the care you want without needing to spend down the assets you worked so hard for.
The Cost of Long-Term Care Can Add Up Quickly
Long-term care can be expensive, and it only continues to rise year over year. The average monthly cost of care depends on various factors, including the type of care, specialized requirements, where you live, and more.
CareScout estimates that you can expect to pay the following monthly costs in 2025.
- In-home care: $6,673
- Assisted Living: $6,200
- Nursing Home: $9,581 (semi-private room); $10,798 (private room)
Memory care is often even more expensive, given the constant supervision and specialized services you need to receive. According to U.S. News, memory care costs vary, so expect to pay between $5,000 and $13,000 – or more – depending on where you live.
Even families with significant savings can be impacted if you need care for several years, especially if you are paying out of pocket. For example, the average annual cost of a private room in a nursing home is nearly $130,000, and if you need care for three years, that would cost you almost $400,000 on just your basic care needs, not mentioning any additional incidentals.
How Long-Term Care Needs Can Affect Retirement Income
Because long-term care expenses can quickly add up, they can force you to make financial decisions you don’t want to.
You may have to:
- Withdraw more from retirement accounts to afford the cost of care.
- Sell investments during unfavorable markets, significantly reducing their value.
- Reduce the income available for your spouse, causing financial hardship in your home.
These choices can be difficult to make, especially when you worked so hard for your assets. Long-term care coverage can help bridge that gap, creating a dedicated source of funding for your future care needs while protecting your retirement income and lifestyle choices.
Protecting Savings, Investments, and Wealth Transfer Goals
Many high-earners have a strong vision of the legacy they want to leave behind, and that includes their finances. However, long-term care can disrupt those plans, affecting your wealth transfer, inheritance planning, charitable giving, and other estate planning goals.
As a result, you won’t have as much to leave behind if you spend it on paying out-of-pocket care costs.
Many high earners think that because they can pay for their care needs out of pocket, they don’t need long-term care insurance. However, that’s not the right mindset to approach long-term care insurance.
Long-term care insurance is less about qualifying for assistance. Just because you can afford your long-term care out of pocket doesn’t mean you should pay for it that way. Instead, securing long-term care insurance can help you protect the assets you worked hard to build, allowing you to stay in control and spend them as you originally planned.
Long-Term Care Insurance Options for High-Income Individuals
Long-term care insurance policies aren’t one size fits all. You have options, and which you choose depends on your goals and your personal financial situation.
- Traditional long-term care insurance: In traditional LTC policies, you will pay a premium, and once you need care, you can tap into your policy on qualifying expenses. Most policies carry inflation riders to ensure the value of your policy keeps up with the rising cost of care.
- Hybrid life insurance with LTC benefits: Some life insurance policies allow you to tap into the benefits while you are alive to cover the cost of long-term care. You do not lose the value of your policy if you do not use it in a hybrid life insurance policy.
- Linked-benefit policies: Linked-benefit policies pair coverage together within a single policy. It is a type of hybrid insurance policy that allows you to realize the benefit of your policy in multiple ways.
- Executive or employer-sponsored LTC solutions: These policies may be part of your employer’s total compensation package. You may be able to secure a lower rate; however, it may limit your care options.
- Coverage for spouses or family members: You may be able to include others within your LTC insurance policies. For example, spousal riders allow you to cover care for your spouse. Other policies may allow you to pay your family members to be your caregivers, reducing financial stress.
Discuss with a financial advisor and long-term care insurance professional which option is best for your personal situation.
Potential Tax Considerations for High Earners
In addition to paying for your long-term care needs, there are additional benefits to securing LTC insurance.
Some long-term care insurance premiums may qualify for tax advantages depending on the policy type, business structure, and who pays the premiums for the policy.
For example, you may receive tax-free benefits based on whether you are getting reimbursed or if you have a set daily or monthly allowance. You may be able to deduct the cost of long-term care insurance premiums from your taxes.
The amount is set by the IRS and is dependent on your adjusted gross income and age. People in their 40s may only be able to deduct $480, while individuals in their 70s can deduct $6,020.
Additionally, high earners, business owners, and self-employed individuals may also enjoy tax benefits when it comes to deducting their LTC expenses.
Because there are many tax considerations, it’s best to consult with a tax professional to understand how LTC planning can fit into your overall financial strategy.
How LTC Insurance Fits Into a Broader Financial Plan
Most high-earners have a strong financial plan in place for how they want to care for their finances, both in their old age and in their death.
However, many fail to factor in how their long-term care needs fit in. Long-term care coverage can actually complement your retirement, estate, and disability planning, life insurance discussions, and investment strategy.
Your long-term care insurance plan isn’t just about paying for your care. It’s also about reducing uncertainty about what the next steps are and helping protect your overall financial plan as a whole.
It’s another tool you can use to preserve your wealth.
When Should High Earners Consider LTC Coverage?
When it comes to long-term care insurance, it’s best to start planning early. Many high earners should consider LTC planning in their 40s to early 60s as part of their retirement and estate planning conversations.
This will help you secure coverage before health issues arise, as age and health can affect eligibility and premiums. For example, some pre-existing health conditions may disqualify you from receiving an LTC policy – or significantly increase the premium cost since you are at higher risk.
The same is true for age. The older you are, the more likely it is that you will need to receive care sooner. This can increase the premium amount or disqualify you entirely.
Get Guidance on Long-Term Care Planning
The right long-term care insurance strategy depends on a variety of factors, including income, assets, family needs, retirement goals, and overall financial planning priorities.
It can be challenging to understand which option is best for you and your personal situation, and Lavine LTC Benefits can help you and your family make informed decisions that will protect your savings and retirement income while preserving your future care choices.
Contact us today for more information and to help you start planning your future long-term care needs with confidence.
Frequently Asked Questions
Is long-term care insurance worth it for high earners?
Long-term care insurance allows individuals to pay for their long-term care needs without leveraging their personal savings or estate. Outside of meeting the exclusion period, it should cover the cost of long-term care based on the terms of your policy.
What are the tax benefits of long-term care insurance?
You may be able to write off the cost of your insurance premiums on your taxes, as well as receive tax-free benefits for reimbursement and daily or monthly maximums. Consult a tax professional to understand the full extent of your tax benefits based on your personal financial situation.
When should I secure long-term care insurance?
You should secure long-term care insurance as soon as possible. The earlier you obtain a policy, the lower your premium will be. Additionally, you may be able to secure a policy before you develop health conditions that would otherwise exclude you from LTC insurance. On average, individuals secure their policies between their 40s and 60s.