Young Buyers Should Avoid Guaranteed Purchase Option (GPO) with Long Term Care Insurance Policy

Young Buyers Should Avoid Guaranteed Purchase Option (GPO) with Long Term Care Insurance Policy

People shopping for a long term care insurance policy will notice that there are a lot of different choices, many of which can be confusing to those who have never dealt with this type of policy before. One option in particular, the Guaranteed Purchase Option, is often offered as a rider, but young buyers should stay away from this rider to avoid future financial disaster.

Details of Rider

The Guaranteed Purchase Option, or GPO, is typically offered as a form of inflation protection to applicants. Although this rider has its purposes, when purchased by buyers in their 40s and 50s, it can lead to mayhem surrounding policy benefits. Here’s why:

Guaranteed Purchase Option, sometimes called Future Purchase Option, depending on which company you are dealing with, allows applicants to purchase a minimal amount of coverage while leaving the opportunity open to later increase that coverage amount if they so desired. The additional cost for this option is usually fairly low, making up approximately 2% of the total policy cost. Every 2-3 years, the policyholder will be offered the option to increase the daily benefit amount on their policy. This presents an ideal situation if, for example, they become ill or are able to afford higher premiums later on down the road.

Unintended Consequences

From afar, it sounds great. The underwriting standards don’t change over time, meaning even if your health declines, it won’t affect your ability to add more coverage. There is, of course, a catch that can lead to a financial snafu and put extreme strain on your retirement plan: If you turn down the offer to extend your daily benefit amount more than 2 times, some companies will permanently rescind the offer, squashing any chance you have at gaining more coverage in the future and keeping you stuck at the same coverage level for good.

In addition, if you do decide to opt for a benefit increase, the cost increase is based on your new, current age, rather than the age you were when you applied. This system can result in a large increase in premium rates for a small increase in coverage. The Guaranteed Purchase Option is truly only a good choice for applicants in their 70s, who face the risk of care sooner rather than later, meaning their decisions to increase coverage would come at an appropriate time, rather than years early.

What Other Options Exist?

Young buyers looking into the option of long term care insurance should opt for the compound inflation protection, which will increase the value of your benefits over time, keeping pace with inflation, so if and when you ever need care, your benefits will still cover the increased cost. We can help guide you through the various options available and provide you with a side-by-side comparison of the top companies. Our hands-off process allows you to take your time researching the different policies and decide which one is best for you.

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