Understanding Inflation Protection for Long Term Care Insurance

Given that long term care benefits may not be used for 20 or 30 years after purchase, it may be prudent to purchase inflation protection.  With long term care costs likely to grow even faster than inflation, inflation protection can be a very important option as discussed in a Forbes article titled, What Are The Best Coverage Options For Long-Term Care Insurance?”. 

There are different types of inflation protection such as compounding, simple or none at all. Most inflation protection will grow at 3% or 5% annually. While compounding growth rates obviously grow at the fastest pace and provide the largest benefit amount, they are also the most expensive. A flat or simple rate will provide some inflation protection, but may not keep up with increasing costs of care. Below is a figure that shows the changes in a $5,000 policy under different growth rates.

Source: Wade Pfau: Professor at The American College and Principal at McLean Asset Management. His website: www.RetirementResearcher.com

While all of these options may seem complicated and overwhelming, the process of choosing long term care insurance can be helped by consulting with an experienced professional. Similar to speaking with an insurance agent before purchasing auto or home insurance, you should not make these decisions on your own. Meeting with a qualified elder law attorney or financial planner can help you sort through the options and choose the best for your needs.