High-Net-Worth Couple Surrenders Long-Term Care Policies to Self-Fund $400,000 Reserve
With median nursing home costs projected at $135,500 annually, the couple established a dedicated reserve to cover potential care while preserving capital for heirs, though experts advise weighing reduced paid-up options first.
A 70-year-old married couple holding $3.4 million in assets has surrendered their long-term care insurance policies, replacing them with a dedicated $400,000 self-insurance reserve. The decision follows a 27% premium increase on their 12-year-old plan, a move that triggered a strategic reassessment of their retirement risk management. Instead of absorbing the rising costs, the couple allocated 50% of the new reserve to stocks and 50% to bonds, aiming to cover median care expenses while preserving unused funds for their heirs.
Over the past 12 years, the couple paid a combined $127,200 in premiums for coverage with a limit of approximately $584,000. The decision was triggered by a premium hike notice, part of a broader trend where major insurers have aggressively increased rates since 2010. The couple’s total asset portfolio consists of $2.1 million in a traditional IRA, $600,000 in a Roth IRA, $500,000 in a brokerage account, and $200,000 in cash, providing the liquidity required to execute this self-insurance strategy.
The $400,000 reserve is projected to grow to approximately $832,000 by age 85, based on a 5% expected real return, aligning with the median age for a first long-term care claim. Current market conditions present a challenge to this 5% return assumption: the 10-year Treasury yield is near 4.67%, the Fed funds upper bound is 3.75% following three cuts since late 2025, and 30-year TIPS offer roughly 2.7%. Achieving the targeted return now requires taking on meaningful equity risk rather than relying solely on fixed-income instruments.
Inflation pressures are significant, with Core PCE rising from 125.79 in May 2025 to 129.63 in April 2026. Median nursing home costs are estimated at $135,500 annually in 2026, meaning the reserve must be sufficient to cover six or seven years of care. Approximately 52% of Americans over 65 will need some paid long-term care, with an average duration of two to three years, while only about 13% require five or more years of care.
Experts suggest that before surrendering policies, policyholders should request a "reduced paid-up election" from the carrier to preserve some coverage without paying the increased premiums. This option allows holders to stop paying premiums in exchange for a smaller permanent benefit, avoiding the use-it-or-lose-it trap associated with traditional long-term care insurance. For households with assets exceeding $3 million, self-insurance often presents a mathematically viable alternative to traditional coverage, provided they can absorb the potential outflows without jeopardising their broader financial goals.
