It is a common knowledge that long term care insurance is expensive and that by a year or two the rates could ascend direly. An insurance purchased now may be of little value after ten to twenty years, and when this happens, the burden is being shouldered by American adults who hopelessly need long term care. This being the case, what is the best thing to do to secure the policy of insurance against the rising cost of care as time goes by? The answer is Long Term Care Inflation.

Long Term Care Inflation increases the policyholder’s daily or monthly benefit amount that will compensate with the inflation and increased cost of care. This is an option with most commercial insurance coverage. Policies with inflation protection may increase premium pay but it will surely help policyholders to save for the future rates.

It is not required to purchase inflation protection, however due to drastic increase in medical expenses as each year passes , inflation protection is an option which is so important and must be considered in a Long Term Care Insurance policy. If the insurance policy purchased has no inflation protection, insurance company will only pay for a small portion of actual cost of the future care expenses. Without inflation protection, long term care insurance will pay future expenses based on the time the plan was purchased. For example, the benefit will be used 20 years from now and it has no inflation protection, the policyholder is required to pay the difference between the amount paid by the insurance and the actual cost of care.

Several choices in purchasing policies with inflation protection are as follows:

1. 5% Simple or Equal Inflation Protection

2. 5% Compound Inflation Protection

3. Future Purchase Option

4. Consumer Price Index (CPI)

5. 3% Compound

6. 4% Compound

1.) 5% Simple or Equal Inflation Protection

In this option, the benefit increases by the same dollar amount every year. For example if a policyholder is getting $100 daily benefit amount (DBA) increasing 5% per year, within 20 years it will become $200 daily. ($100 DBA + ($5 x 20 years). For people with lower or shorter life expectancy this is the option recommended to save money for paying higher premiums.

2.) 5% Compound Inflation Protection

Compared to 5% simple or equal protection, compound inflation protection increases benefits by a higher dollar each year. If a policyholder for example is getting DBA amounting to $100, it will become $265 DBA after 20 years. This is recommended for policyholders with longer life expectancy such as 15 years and above.

3.) Future Purchase Option

This is an option usually offered every year or two. Meaning unlike the simple and compound inflation protection benefits in this option does not automatically increase. You may turn down the offer, but there’s a chance that it may not be re-offered to you again. Once offer is accepted the amount of coverage increase will not be based on the time the policy was purchased but on the policyholders current age.

4.) Consumer Price Index

This is an option offered only by few insurance companies. Here, insurance benefits increase in an actual CPI as computed by US Government. The risk however in this option is that medical care/cost may rise faster than inflation.

5.) 3% and 4% Compound

Like CPI inflation protection, few companies also offer these options. If someone in their late 60s will purchase long term care, this is the option recommended. However, if you’re planning to take advantage of this option, assess first the difference of the lower rates to standard rates and how will it affect you in 20+ years. You’ll see the significant difference of a lower rate compared to the higher rates.