Inflation Protection: Why it should be added in your long term care insurance policy?

Inflation Protection: Why it should be added in your long term care insurance policy

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Inflation is an economic term that refers to the increase in the prices of goods but the dollar amount remains or declines its value. This simply means the increase in the costs of living. The effect of this is that consumers would find the goods and services unaffordable. The government coined the Consumer Price Index as perimeter to determine the rate of inflation.

Like other services, long term care services have also exacerbated along with inflation. LTC services have increased from 4.7% to 6.6% since 2004. In 2010, private rooms in nursing homes averaged to $240 per month or $90, 115 per year, according to the Prudential Life Cost of Care study. Home health care rose from 2006 to 2008.

Long term care insurance is used to cover LTC services that either private insurance or Medicare does not pay for. However, the National Association of Insurance Commissioners says the long term care insurance inflation protection must be added on LTC policiesfor it increases the amount of benefits, but the premium will not be affected.

Automatic Compound Inflation Option

Automatic inflation is offered for 4% and 5%. As the name suggests, this feature increases the daily benefits automatically on each anniversary date the date your coverage was made effective. It also incorporates future inflation to help your coverage keep pace with inflation. Although the benefits rise every year, your premiums will remain its amount, except if you are under a group plan.

Which is better 4% or %? Obviously, the benefits compounded by 5% are higher than the 4%, but, on the other hand, the 5% is equivalent to higher premiums compared to the 4%. Both percentages increase the policy benefits on each anniversary date.

The Future Purchase Option

The Future Purchase Option (FPO) compounds the daily benefit and maximum lifetime benefits every two years on the beginning the first of January. For example, if the FPO was bought at effective date of January 1, 2008, the benefits will be compounded on January 1, 2010 as two-year requirement. Nevertheless, the coverage must be existing for a year before the increase takes place. Take note the premium will eventually rise on each increase but the increment will depend on your age and the rates.

You may cancel the increase by notifying your company you don't want to receive it. But if you want to continue the increase, it will automatically raise your benefits. This option does not entail any proof or medical records about your health over the past years.

Time Limited Protection

Some inflation protection can increase benefits at longer time period of 10 to 25 years at the time the policy begins, or when you reach the age you want to receive the increase. People younger or in between 50s and 60s may consider longer period for the inflation protection.

The inflation protection is important in any long term care insurance policies because it adds value to your benefits in the future. You may afford the costs today, but long term care services will rise drastically in the future at an overwhelming rate, and you may not be able to shoulder those costs.

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