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Jun 10th, 2020

What is Inflation Protection on my Long-Term Care Quote?

The most expensive line item on most quotes for Long Term Care Insurance will be the inflation protection rider. That's because the cost of care goes up dramatically over time, and so should your benefit payments. Imagine buying a policy only to find out in the future it only covers a tiny fraction of LTC costs. That is what can happen if you opt to NOT have inflation protection.

As with most insurance policy-related features, "the devil is in the details" so read on for a few pointers to help you decide:

The short version...

If you're 70-75 years old, and think you may use your Long Term Care Insurance plan in the next 10-15 years, 5% Equal or 5% Simple Inflation Protection may be the best option for you.

On the other hand: If you're under 70, in almost every case, 3% or 5% Compound Inflation Protection will give you better value.

Why Compound is Superior

We did the math.

Starting with a $100/daily benefit, compare 5% Simple vs 5% Compound:

  • 5% Simple adds $5 in benefit per year, with no compounding.

    • So in 25 years, when you're close to average claim age, your benefit will have grown to $225/day.
  • The Problem is: costs compound.
  • A 5% Compound benefit starting at $100/day today will be at $338/day,

    • In Year 26, the 5% Compound Increase option will be adding $17 with Compound vs $5 with Simple protection.

Partnership Plans

Partnership Plans can potentially save you hundreds of thousands of dollars that would otherwise be lost to Medicaid asset recovery, so it's worth noting how to qualify for these plans.

Most states have minimum requirements for Inflation protection, which helps your policy continue to pay long-term care benefits as costs rise. Partnership policies provide different levels of inflation protection based on your age:

Under 61 years old: The insurer must offer you the option to buy 5 percent compound annual inflation protection. You can buy protection at a lower rate, but you must have some type of compound inflation protection. When you turn 61, you can change the inflation protection provision to meet the requirements of the next age bracket.

Ages 61 to 76: You must buy and keep some form of inflation protection until you are 76.

After age 76: Insurers must offer inflation protection, but you don’t have to buy it or keep it.

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