For many people, long-term care insurance (LTCI) is a smart move. It preserves independence, protects assets, and helps avoid placing a heavy caregiving burden on loved ones. But once your client decides LTCI makes sense, the next question is often: “How am I going to pay for it?”
Fortunately, there are several flexible ways to fund a long-term care policy, including some that don’t require writing a check out of monthly cash flow. Whether your client is mid-career, approaching retirement, or already in retirement, here are some of the most common and strategic funding options.
Read More: Top 5 Long-Term Care Insurance Facts Every Agent Should Know
1. Pay-as-You-Go (Out of Pocket)
The most straightforward method: paying premiums directly from income or savings. This works well for:
- Individuals in their 40s to early 60s
- Clients with stable income and predictable expenses
- People purchasing traditional LTCI or hybrid policies with annual premiums
Encourage clients to lock in coverage earlier to benefit from lower premiums.
2. Single Premium Payment
For clients with available cash or low-yielding assets, a one-time, lump-sum payment into an asset-based (hybrid) LTCI policy can fund lifetime benefits with no future premiums required. This option is best suited for:
- Retirees with large CDs, old annuities, or money market accounts earning low interest
- Individuals downsizing a home or receiving an inheritance
- Clients looking to avoid premium increases or simplify budgeting
Many hybrid policies include a death benefit or cash value if care isn’t needed.
3. Life Insurance Policy Repositioning
Existing permanent life insurance (whole or universal life) can often be exchanged, tax-free via a 1035 exchange into a new policy with LTC benefits or riders. The benefits of this option include:
- No new out-of-pocket premiums
- Allows underperforming policies to be used more efficiently
- Leverages an existing death benefit into living benefits for care
This is a powerful strategy for clients who no longer need the original life insurance for income replacement or estate taxes.
4. Health Savings Accounts (HSAs)
HSAs allow tax-free withdrawals for eligible LTCI premiums (within IRS limits, based on age). These IRS limits range from $900/year for ages 41-50 to $6,020/year for ages 71 and older. For a complete table, please contact our office.
5. Income-Generating Annuities
Clients concerned about outliving their savings may use an income annuity to create a steady stream of income, some or all of which can fund LTCI premiums. This option:
- Helps budget for ongoing annual premium payments
- Can structure for life, a fixed period, or joint payout
- Can include income doublers for Chronic Illness claims
This strategy is especially useful for clients who don’t want to rely on market performance to cover insurance costs.
6. Family Support or Gifting Strategies
In some cases, adult children are willing to contribute to a parent’s LTCI because:
An intergenerational conversation can turn into a family-wide planning strategy.
Read More: How to Effectively Close a Long-Term Care Insurance Sale
There’s no “one-size-fits-all” way to fund long-term care insurance, and that’s a good thing. Whether through cash, qualified assets, repositioning old policies, or creative combinations, clients have more flexibility than ever.
As agents and advisors, our job is to help clients see LTCI not as a cost but as a way to protect their lifestyle, their legacy, and their loved ones. For more information on the plans available in your state, book a call with our team.