Inflation Protection

What happens when the costs of long term care increase over time?

Inflation Protection

An inflation protection clause is one of the most important options to have in a long term care insurance policy. Inflation protection benefit increases the daily benefit amount over time to keep pace with inflation and the increased cost of expenses.

Although you are not required to purchase inflation protection, it is an important protection for younger people who might not need long term care for many years. Inflation protection will increase the premium on a long term care insurance policy. With the continual increase in the costs of long term care services, it would be wise to consider the protection offered by this benefit. A long term care insurance policy without an inflation protection may be of little value 10 to 20 years from the time of purchase.

A Long Term Care Insurance Policy Without Inflation Protection

Without an inflation protection benefit in your long term care insurance policy, you may be put in a situation in which the insurance benefits are only paying for a small portion of the actual costs of your future long term care expenses. Without inflation protection, your long term care insurance will only pay expenses based on today’s costs. If the policy is used 10 or 20 years from now, you would be required to pay the difference between what the insurance pays and the actual cost of care.

Increasing Costs of Long Term Care Facilities and Services

Also consider that costs have increased dramatically for long term care services in most states – such as nursing home facilities, assisted living programs, and in-home care. Long term care costs and health care costs continue to rise at a rate much faster than inflation in things such as food or clothing. A nursing home that costs $110 a day now will cost $292 a day in 20 years with 5% inflation per year. For the past several years, the cost of nursing home care has been rising at an annual rate of 8%.

Two Ways to Purchase Inflation Protection

Inflation protection is offered in two ways: automatically or by special offer.

Long term care insurance policies using automatic increase of benefits for inflation use either simple or compound rates. The daily benefit increases using a fixed percentage for either the life of the policy or for a fixed period of usually 10 or 20 years.

With “simple” inflation adjustment, the benefit increases by the same dollar amount each year. A $100 daily benefit increasing 5% per year will go up $5/day per year and be $200 a day in 20 years.

With “compound” inflation adjustment, the benefit increases by a higher dollar amount each year. A $100 daily benefit will be $265 a day in 20 years. Compound automatic inflation increase can make a big difference in the amount of benefit you can receive over the years.

Special offer inflation protection is usually offered to you by the long term care insurance company every three years with an existing policy. If you turn down the option to increase your benefit, you may not be offered the option again. With a periodic increase in benefits, your premium will also increase.

Obtain Long Term Care Insurance Quotes with Inflation Protection

To get an idea of what your long term care insurance rates with an inflation protection option will be, you can get free online long term care insurance quotes.