subject: Inflation Protection and Its Importance [print this page] Inflation Protection and Its Importance Inflation Protection and Its Importance
One of the most significant factors to keep in mind when it comes to long term care insurance policies is inflation protection. Inflation protection increases the amount of daily or monthly benefit over time to keep pace with inflation and rising cost estimates. Though a policyholder's benefits increases each year, premiums will not increase as well this simply means having inflation protection secures your policy against the rising cost of care.
Even if you do not have to buy protection against inflation, it is an important guard for young people who may not require long-term care for many years. Protection against inflation will increase the premium for an insurance policy. With the ever increasing costs of care, it would be wise to consider the protection afforded by this provision. However, the availability of inflation protection depend state by state but to those policies offering this benefit, it is generally sold either in Equal or Compound option.
Equal or more popularly called Simple inflation protection means that the amount of benefits will increase by a fixed amount each year based on the original amount. When put simply, a $100 daily benefit increasing 5% per year will increase by $5/day per year and become a $200 daily benefit in 20 years.
While with Compound inflation protection, the benefit amount will grow by an increased amount each year based on a percentage of the benefit amount. Compound protection is bit more expensive than equal protection but provides an annual increase in the benefit amount greater than the other. A policyholder which chooses a built-in 5 percent compounded inflation protection; the premium will be higher than it would without this protection. When put simply, a $ 00 per day benefit will double to $200 per day in 14 years. Without this protection, the same benefit will only be worth half its initial value in 14 years, and you must pay the difference between that amount and cost of care, which has also increased over the same period of time.
Now, how to purchase inflation protection? Inflation protection is offered in two ways: automatically or by special offer. With automatic inflation, it can make a big difference in the amount of benefits can be achieved over the years. While with special offer, it is usually offered to you by an insurance company every three years with an existing policy. Keep in mind, if turned down once it may not be offered again.
Inflation protection is definitely a must-to-have' in a LTC policy. Without this benefit, there is a big possibility that you get caught up in a situation where the benefits are paid only a fraction of the actual cost of future costs of long-term care. There are instances that without inflation protection, LTCi pays only medical expenses that are based on the costs of today. If a policy has been used for 10 or 20 years from now, you might have to pay the difference between what insurance pays and the actual cost of care.
