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