Inflation Protection
Inflation protection is one of the benefits being offered by long term care policies which hold that benefits will increase by some designated amount over time. It serves as a key selling point for consumers interested in purchasing private LTC coverage.
Under the DRA, policies which offer inflation protection provide compound annual inflation protection to individuals under age 61. For people over 61 but not yet 76, policies must include some level of inflation protection, and policies purchased by those over 76 may, but are not required, to provide some level of inflation protection.
There are mainly two types of inflation protection – future-purchase option and automatic benefit increase. With future-purchase protection, the consumer agrees to a premium for a set amount of coverage. Under this type, the insurance issuer offers to increase that coverage for an increase in the premium amount paid by the consumer. If the consumer chooses to purchase the increased coverage, benefits remain level, even as the costs of long-term-care services increase.
While with automatic benefit increase, the amount of coverage automatically increases by a set amount annually. The cost of those benefit increases are automatically built into the premium when the policy is first purchased, so the premium amount remains fixed.
Inflation protection also comes in different options. This includes:
Simple (Equal) Inflation Protection
With simple (equal) inflation protection, the benefit increases by the same dollar amount each year.
5% Compound Inflation Protection
With 5% compound inflation protection, the benefits increase each year by a higher dollar amount than simple. It can make a big difference in the amount of benefit you can receive over the years.
Future Purchase Option
Future Purchase Option is usually offered by the Long Term Care Insurance Company every three years with an existing policy.
3% and 4% Compound Inflation Protection
These types are offered by only a few insurers. They are a bit less on premium and better fit only for people in their late 60’s.
Consumer Price Index (CPI)
This inflation protection engine will increase your Long Term Care Insurance benefits at the actual CPI Index computed by the US Government.
Inflation protection s an important protection for younger people who might not need long term care for many years. It will increase the premium on a long term care insurance policy so it is wise to consider the protection offered by this benefit.
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