Inflation Protection

A cup of coffee today doesn't cost what it used to. You could probably say that about a lot of items you purchase. The same has historically been true for long term care services and so this eventuality is important to plan for. In fact, if the cost of one year in a nursing home is $75,000 today, in 30 years it will be well over $200,000 if you estimate a 4.1% inflation rate (AALTCI, 3 Step Guide to Smarter Long Term Care Planning). Here are some strategies for protecting against inflation with your long term care insurance policy.

  • Take Out a Larger Daily Benefit – if, for example, today's cost is $150 per day in your area for long term care and you expect to need care sometime in the next 15 years, you might purchase a $200 or $250 per day policy instead to prepare for the eventuality of inflation.
  • Simple Inflation Protection – Simple Inflation Protection provides a boost to your daily benefit each year based on a percentage rate and your original benefit. For example, if you have a $100 per day policy with 5% simple inflation protection, in year two you will have a $105 benefit. In Year three $110, in year four $115, and so forth.
  • Compound Inflation Protection – This type of protection works much like Simple Inflation Protection except it boosts the base against which the percentage is applied. Another example is the best way to explain. Let's start with a $100 daily benefit and a 5% compound inflation protection. In year two you will have $105 daily benefit. In year three your benefit will be $110.25 ($105 + $105 x 5%). In year three the benefit will be $115.76 ($110.25 + $110.25 x 5%). While the difference between simple and compound is small in the early years of the policy, when you look ten to twenty years out the Compound protection grows your benefit much faster.

Have Questions?

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contact 1-800-258-7041 or fill out our Request Information form!