--- title: "Long-term care funding for clients: hybrid vs traditional vs self-funding" description: "Compare long-term care funding options: traditional insurance, hybrid policies, and self-funding. Learn how to choose the best plan based on your needs, health, and financial situation." image: https://partners.planswell.com/hubfs/Advisor%20Blog%20Feature%20Imagesdd.png --- [![Planswell](https://partners.planswell.com/hs-fs/hubfs/planswell-logo-green.png?width=395&height=91&name=planswell-logo-green.png "Planswell")](http://planswell.com) [Planswell features](https://partners.planswell.com/advisors) Free resources [About us](https://partners.planswell.com/who-we-are) [Schedule demo](https://partners.planswell.com/meetings/jenm/grow) ![](https://partners.planswell.com/hubfs/Navigation%20-%202025%20Files/Menu.svg) [![](https://partners.planswell.com/hubfs/Navigation%20Images/test.png)](https://partners.planswell.com/software) Software [![](https://partners.planswell.com/hubfs/Navigation%20Images/training.png)](https://partners.planswell.com/training) Training [![](https://partners.planswell.com/hubfs/Navigation%20Images/show.png)](https://partners.planswell.com/live-show) Live Show [![](https://partners.planswell.com/hubfs/Navigation%20Images/book.png)](https://partners.planswell.com/free-ebook-financial-advisor-sales-training) How To Sell eBook [![](https://partners.planswell.com/hubfs/Navigation%20Images/blog.png)](https://partners.planswell.com/blog) Blog Planswell features Free resources ![](https://partners.planswell.com/hubfs/Navigation%20-%202025%20Files/chevron-down.svg) [![](https://partners.planswell.com/hubfs/Navigation%20Images/test.png) Software](https://partners.planswell.com/software) [![](https://partners.planswell.com/hubfs/Navigation%20Images/training.png) Training](https://partners.planswell.com/software) [![](https://partners.planswell.com/hubfs/Navigation%20Images/show.png) Live Show](https://partners.planswell.com/software) [![](https://partners.planswell.com/hubfs/Navigation%20Images/book.png) How to Sell eBook](https://partners.planswell.com/software) [![](https://partners.planswell.com/hubfs/Navigation%20Images/blog.png) Blog](https://partners.planswell.com/software) About us Schedule demo ![](https://partners.planswell.com/hubfs/Navigation%20-%202025%20Files/x.svg) # Long-term care funding for clients: hybrid vs traditional vs self-funding ![](https://partners.planswell.com/hubfs/Advisor%20Blog%20Feature%20Imagesdd.png)   A client in her late 50s asked me a fair question: “If I never need care, do I just burn the premiums?” Another client, 67 and newly retired, said: “I want control of my money, but I don’t want my kids to become my plan.” That tension is the heart of long-term care planning. LTC is expensive, Medicare doesn’t cover most custodial care, and there are three real ways to pay for it: insure it, pre-pay it inside a life or annuity contract, or self-fund it from the portfolio. ## First, set the stakes in one minute - **Costs are high and rising.** National medians often land around 70k a year for assisted living, about 110k for a nursing home semi-private room, and around 125k for a private room. Home care and adult day services have climbed too. Bring a local cost snapshot to every LTC meeting. - **Most people will need some care.** Roughly seven in ten people who reach age 65 will use some form of long-term care during life. - **Medicare is not the plan.** It covers skilled and short-term rehab in narrow situations. It does not pay for most non-medical custodial care, which is where the real costs live. ## Option 1: traditional LTC insurance **What it is** A tax-qualified policy (IRC 7702B) that pays benefits when the insured can’t perform two activities of daily living or has severe cognitive impairment. Benefits are generally income-tax free. Premiums may be deductible within age-based limits if a client itemizes or is self-employed. **Pros** - Strong leverage on premium dollars - Inflation protection and shared-care riders - Access to state Partnership policies in many states **Cons** - **Rate increase risk** on some blocks; set expectations and design conservatively - Full underwriting and health knockouts - “Use it or lose it” optics **Best fit** - Ages 50 to 64 in good health - Clients who value Partnership asset protection - Couples who want shared benefits rather than two separate pools **Design notes you can reuse** - 3 percent compound inflation as a middle ground for many mid-50s buyers - 90 to 180 day elimination period - 2 to 3 year benefit period per person with shared care for couples - Ask carriers for premium increase history during due diligence ## Option 2: hybrid life or annuity with LTC benefits **What it is** Permanent life insurance or an annuity with LTC benefits built in. Some riders are true LTC riders under 7702B. Others are chronic illness riders under 101(g) that accelerate a death benefit. The differences matter for eligibility, taxation, and consumer protections. **Why advisors like it** - Clients avoid the “use it or lose it” feeling - Premiums are often guaranteed or limited-pay - Friendly to **1035 exchanges** from cash value life or nonqualified annuities **Watch-outs** - Verify rider type and triggers - Upfront funding can be higher - Internal rates vary widely by age, health, guarantees, and inflation options **Best fit** - Clients with idle cash value or nonqualified annuities to reposition - Clients who want premium certainty and a benefit either way ## Option 3: self-funding with a written plan **What it is** Earmarking liquid assets and cash flow to cover an expected range of care costs, coordinated with family roles, home modifications, and housing choices. **Pros** - Full control and no underwriting - Avoids policy complexity if the client can truly bear the risk **Cons** - Sequence risk if care starts during a down market - Requires discipline and family alignment - Clients often underestimate duration and cost **Tax angles that help** - **Medical deduction route.** Tax-qualified LTC premiums and out-of-pocket LTC services are medical expenses, subject to itemization and the 7.5 percent AGI threshold. - **HSA route.** HSA distributions can pay tax-qualified LTC premiums up to age-based limits that adjust annually. **Best fit** - High-liquidity households that prefer control - Clients willing to revisit underwriting by a set age if markets or health change ## A simple decision map you can walk through in five minutes 1. **Ability and willingness to self-insure.** If yes and liquidity is strong, model self-funding with market drawdown stress. If no, continue. 2. **Health and underwriting.** If healthy in the 50s or early 60s, price both traditional and hybrid. If underwriting is tight, some chronic illness riders may still be options. 3. **Desire for guarantees.** If premium certainty and a benefit either way are non-negotiable, favor hybrid. If maximum leverage per premium and Partnership features matter, favor traditional. 4. **Existing policies.** If there is cash value life or a nonqualified annuity, evaluate a partial **1035 exchange** to fund part of the solution. ## Client conversation outline you can copy - **Open with values.** “What matters most if care is needed: staying at home, keeping family as coordinators not caregivers, protecting assets for a spouse or heirs?” - **Show a cost range.** Local home care, assisted living, and nursing home medians on one page. - **Pick one primary and one backup.** Example: Hybrid as the primary plan with a written self-funding backstop for the elimination period. - **Assign roles.** Who calls the care manager, who handles bills, what home changes happen first. - **Document triggers.** Who certifies need, what the elimination period means in practice, and how benefits coordinate with Medicare and Medigap. ## Quick case sketches **Couple, 58 and 56** Moderate assets, want Partnership protection and lower first-year cost. Design a traditional policy with 3 percent compound inflation, shared care, and a 90 day elimination period. Review carrier rate history and illustrate reduced-benefit choices if rates rise. **Widow, 67** Strong balance sheet, large nonqualified annuity with gain, dislikes “use it or lose it.” Complete a partial 1035 exchange into a hybrid annuity-LTC policy for premium certainty and residual value if unused. **Engineer, 61** Prefers control and has 4 million dollars liquid. Set a dedicated LTC sleeve equal to three years of local assisted living cost plus home modifications. Consider a minimal policy later for coordination and caregiver support benefits, paid via HSA up to allowable limits. ## Red flags to check before you recommend anything - Rider type and tax treatment. Confirm **7702B LTC** versus **101(g) chronic illness** - Inflation option. Compounding matters under age 60 - Evidence of insurability. Capture impairments early - Partnership status. Verify state rules and reciprocity - Elimination period details. Calendar days versus service days can change outcomes ## What to do this week 1. Pull a list of clients age 55 to 70 and segment by health and liquidity. 2. For three households, prepare side-by-side quotes: traditional and hybrid. Add a self-funding column with a real local cost range. 3. Map a one-page care plan that names roles, shows benefit triggers, and lists the first three calls to make if care is needed. ###### Sharing is caring! 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