What Happens When LTC Costs Rise?


Inflation Protection Will Help!

This can be one of the most important additions you can make to a long-term care insurance policy. Inflation protection will increase the premium. However, unless the benefits increase over time, years from now you may find they haven't kept up with the rising cost of long-term care.

You can usually buy inflation protection in one of two ways: Types of inflation options vary by carrier.

  1. Automatic Inflation Protection

    • "Simple", "Compound", or Consumer Price Index

      • For "Simple" or "Compound" - The increase will depend on your choice of option. The Daily Benefit increases each year by a fixed percentage, usually 5% . The increase continues for the life of the policy, including during a claim for benefits, or in certain exceptions for period certain (ie 10 or 20 years). Sometimes a 3 or 4% annual increase option is available.

      • Simple: Increases the policy benefit by 5% of the initial benefit each year. Example: $100 a day benefit will increase by $5 each and every year. Benefit will be $200 in 20 years.

      • Compound: Increases the policy benefit by 5% of the total daily benefit including the increase from the prior year. Example: $100 daily benefit will become $265 a day in 20 years.

      • Consumer Pricing Index (CPI): This inflation option compounds annually, and is linked to the Consumer Price Index for all urban Consumers.

        How it works: Every year on your policy anniversary, your daily or monthly benefit and your Total Pool of Money will be automatically adjusted according to the change in the CPI. During periods of high inflation, such as 1980 when the percentage increase reached 13.5% and more recent 2005/2006 average increase of 3.2% your benefits will adjust accordingly while premiums remain level.

    • Does my premium increase each year for the inflation benefit?

      • Even though the Long-Term Care benefits are increasing each year from the origination of the policy based on the inflation option chosen, the cost is built into the premium at the beginning. Therefore the policy benefits will increase each year, but the premium will stay level over the lifetime of the policy except in the instance where the carrier initiates a rate increase for the class of policies. More information here: "Once I am insured, can the insurance carrier raise my rates?"

      • The Compound inflation rider grows at a faster rate than the simple inflation option. The younger you are the more need for Compound verses Simple. For instance, The National Partnership Program uses the following Inflation guidelines; under age 61- mandatory purchase of Compound Inflation, from ages 61 -75, a purchase of some form of annual inflation (simple or compound) whatever is affordable, age 76 and older, an inflation rider is not required. See The National Partnership Program for additional information.

  2. Special Offer or Non-Automatic Inflation Protection

    • Allows you to choose to increase your benefits periodically, such as every 2 to 3 years.

    • You usually don't have to show proof of good health... if you use the option regularly (meaning accept the increases).

    • If you accept the increase offer, your premiums will increase and will be calculated at current age.

    • If you choose this option and are planning to accept the offers on a regular basis, you may want to consider the Compound or Simple inflation option, the cost in the end may be cheaper.

    • If you turn down the offer one year, you may not get the chance again. You would need to check the policy you are considering to verify how this will affect future offers.


Disclaimer: Insurance products are offered through insurance companies with which we have sales arrangements. Not all products/features may be available in your state. Check with your Accountant or Tax professional on the tax issues associated with Long-Term Care insurance purchase and benefits. Associates of Clifton Park are not a part of Raymond James & Associates. Securities offered through Raymond James & Associates, Inc. Member FINRA/SIPC

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