Long-Term Care Insurance: Inflation Protection 

The costs of long-term care services will definitely increase in the coming decades. An inflation protection benefit, either included with the coverage or as a rider, is an essential part of virtually every long-term care insurance policy.

The inflation protection rider automatically raises the benefit amount of your policy each year, either by a 5% simple or a 5% compound inflation benefit.

The compound inflation protection benefit is more costly, but is the best choice because it's more realistically tied to probable inflation rates.

Here's how it works: if your policy has a maximum monthly benefit of $4,000 when you purchase it, in the 13th month of your policy, your monthly benefit will automatically rise to $4,200 per month. The compound inflation rider will double the benefits of your policy every 14 years. If you purchase the simple 5% inflation benefit, your benefits will double every 20 years.

Even with inflation protection, you will still need to monitor the rising cost of care in your area to make sure your coverage is still adequate.

RECOMMENDATION: We recommend the following:

• Everyone who purchases coverage at age 70 and under should purchase the compound inflation protection benefit.

• If you are purchasing coverage between ages 71 and 75, and the compound inflation protection benefit adds too much to the premium, consider the simple inflation protection benefit.

• If you are purchasing coverage after age 75, and both the compound and simple inflation protection benefit riders are too expensive, consider increasing your benefit amount to act as a cushion against inflation.