Keeping Your Policy Competitive with Inflation Protection
Long term care insurance policies are normally offered with a variety of add-ons or riders. You can choose to accept these riders and pay a higher premium or simply ignore them. There is one specific rider though which you wouldn’t want to ignore as it can affect the value of your maximum benefit amount tomorrow. It’s the long term care insurance inflation protection.
Just like other long term care insurance (LTCI) riders, the inflation protection is optional except in Partnership qualified policies as it happens to be a requirement. This rider protects your benefits from possible inflation so even if the cost of care increases twofold in 10 years’ time, you can rest on the fact that the total amount of your insurance benefits will also go up.
You can choose not to buy the inflation protection rider but bear in mind that your maximum benefit amount is only as good as the cost of care at the time you purchased your policy. Long term care (LTC) costs increase 5% every year so if you are expecting to require care 20 years down the road just imagine how much the annual cost of care will be by then.
If your policy stipulates a maximum daily benefit amount of $200 without inflation protection, don’t go harassing your insurer 20 years from now once you find out that this amount no longer conforms to the average annual cost of a nursing home which is probably $800 by then. If you have not been keeping abreast of LTC news, you ought to know that the financial advisors and LTC specialists have projected a fourfold increase in LTC costs sometime in 2030.
Choosing Your Long Term Care Insurance Inflation Protection
Insurance companies that sell LTCI policies offer different types of inflation protection riders but the most common is the 5% Compound Inflation Protection as it increases one’s benefits by a higher dollar amount every year. In 20 years or even less, the insured person’s maximum benefit amount would’ve tripled.
Another kind if inflation protection rider is the Simple Inflation Protection which is cheaper than the 5% Compound Inflation Protection as it increases one’s total benefit amount by the same dollar amount every year. So 20 years down the road, his total insurance benefits would be twice as much as its initial amount.
There’s also the 3% and 4% Compound Inflation Protection which is only recommended to LTCI buyers who are over the age of 60 because this would cost less in premium compared to the 5% Compound Inflation Protection.
Now if you are still undecided you can opt for the Future Purchase Option, an inflation protection which is only offered every three years. Note that what is offered to you today may not be offered again should you decide to turn it down. In case you would accept its offering in the future, the premium of your coverage will be based on your current age and not on your age at the time you purchased your policy.
Your long term care insurance inflation protection will serve as your policy’s life. Without it, you run the risk of dealing with higher out-of-pocket LTC costs in the future.
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