Benefit Choices of Comprehensive Long Term Care Insurance

3. Inflation Protection

No Inflation Factor
No inflation benefit means that your Daily Benefit will stay the same for as long as you own your policy. For example, you may decide on a benefit of $120.00/day purchasing the policy. Whether care is needed now or ten years from now, the benefit paid out will only be $120.00/day. If you are over the age of 75 we recommend considering this option and choosing a Daily Benefit slightly higher than the actual care cost in your area.

Automatic Simple Inflation Factor
A simple inflation policy adds a percentage of the original benefit each year, giving you a new daily benefit. For example, a $120.00 daily benefit that increases by a “simple” 5% per year will provide a $180.00 daily benefit after ten years. This option is good to consider if you are between the ages of 65 and 75.

Automatic Compound Inflation Factor
In a compound inflation policy, each year the benefit amount is increased by a percentage. The most common is a 5% compound increase. Over time, this is a much greater benefit increase than the simple option. A compound policy that provides a $120.00 daily benefit, increased 5% per year will pay $195.47 per day in ten years. It is important to note the inflation factor because of the way in which health care costs have outpaced common economic inflation indexes. Therefore, we recommend the compound inflation benefit for anyone, especially those under the age of 65.

The automatic inflation increase (5% Simple and 5% Compound) does NOT cause the premium to increase. A sound Long Term Care policy is known to be “Level Premium”, meaning the benefits increase but the premium stays the same. For most policies, the automatic increases in the Daily Benefit continue even while you are on claim and receiving benefits.

When you purchase long-term care insurance, you will want your policy to stand the test of time. The costs of long-term care are expected to increase just like they have done in the past. In fact, over time, the costs of long-term care can double or triple what they are today. Depending on the state that you live in, you will have several choices of inflation protection options. The two most common inflation protection options in long-term care policies are 5% compound and 5% simple inflation protection. These options increase your benefits over time, but your premiums are designed to stay level for the life of your policy. If inflation for long-term care runs five percent annually, a nursing home that now costs $110 per day could be charging more than twice as much a day in 14 or 15 years. Without this protection, your policy could cover less than half of your care costs at that time.