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Why is it important to have inflation protection? What amount of inflation protection is recommended to keep up with rising health care costs? The main issue, however, is that the need to make a claim for most purchasers of this type of insurance is most likely 15, 20, 30 years away. A policy without inflation decreases in value, on an inflation adjusted basis, every year the cost of increases. Simple inflation protection is interest on the original daily benefit only.
Simple inflation is appropriate for individuals in their later 60's or 70's. Compound inflation is interest on interest.
Sometimes known as the "8th wonder of the world," compounding interest has a snowball effect increasing your benefits at a more significant pace than simple interest. Over time, compound inflation protection will provide quite a big difference in benefits than what simple inflation protection will provide.
Very few companies will offer inflation increases tied to the CPI index. With this option, your benefits will increase according to the annual increase of the Consumer Price Index. Please keep in mind that CPI has averaged about 2. Long term care costs, and health care costs are not necessarily tied to the CPI index. Many policies do not contain any inflation protection, or simply gives the policy owner an "option" to buy more.
We often see this within policies offered to employees in group settings. For younger applicants, of which most employees in group settings are, the lack of automatic inflation is a big problem. Where a Purchase Option might make sense is with older applicants in their middle seventies or later when it is reasonably determined that there is less time between point of application and the need to make a claim.
Or even with applicants that have sufficient assets to co-insure part of the cost. Inflation protection is pricey for older applicants. If you are in your 70's, you may consider buying coverage without automatic inflation protection.
Here is a chart comparing inflation protection. You can see why compound inflation factor is important if you are buying long term care insurance in your 40,'s 50's, or 60's. The importance of buying coverage with inflation protection cannot be overstated. Either the issue of rising healthcare costs must be addressed by the plan, or an ever-increasing amount of co-insurance must be accepted in the future. If inflation protection is purchased it is important to understand the differences and the long-term effects of each option.
Many group long term care insurance policies do not offer automatic inflation protection as an option. Additionally, most employees enrolling in group plans are in their 40's, 50's or 60's. If you would like to learn more about the various long term care insurance inflation options and find out which policy option makes sense for you, please give us a call toll free at or simply complete our contact form and we will get back in touch with you.
We are here to answer your questions, guide you through your options and help you make good decisions. The high cost of long term care is a huge issue of concern today. Compound Inflation Protection Compound inflation is interest on interest.
Please do not confuse "Purchase Options" with automatic inflation protection. Or click the button below to request your quotes online.