"Self-Insuring" Is a Myth: The Reality of Self-Funding
People often say they're "self-insuring" when they decide not to buy long-term care insurance. But here's the truth: self-insuring doesn't exist in this context. It's a myth. What they're actually doing is self-funding, and there is a big difference.
Self-funding simply means you're not transferring risk to an insurance company. You're keeping it. But that doesn't automatically mean you have a strategy. You might just be hoping that nothing bad happens, or in many cases you may be genuinely unprepared.
Long-term care can cost $100,000+ per year. When care actually arrives, self-funding creates a real problem: you may need to liquidate investments, sell property, or withdraw from retirement accounts to pay for it. That's where the tax avalanche hits.
Selling appreciated assets triggers capital gains taxes. Large retirement account withdrawals push you into higher tax brackets and can affect Medicare premiums, Social Security taxation, and Medicaid eligibility. What should have been a manageable expense becomes a tax nightmare, and suddenly you're paying far more than insurance would have cost you in the first place.
With insurance, you transfer that risk to a company built to handle it and spread the cost across many people. You're paying predictable premiums now instead of facing unpredictable, massive costs (plus tax consequences) later.
Self-funding without a genuine plan isn't a strategy. It's a gamble that could trigger a financial crisis.
Don't rely on hope and optimism. Protect you, your family, and your legacy.
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