Inflation Protection in Long Term Care Insurance

The only way to protect yourself from such skyrocketing costs is to make sure your long-term care policy has good inflation protection built into it. Note the emphasis on good inflation protection—it comes in several different forms, and some are better than others.

• Added coverage purchase. This type of provision permits you to purchase added coverage every few years with higher benefits. The problem is that the added coverage will also come with new premiums—based on your increased age plus any other rate increases—that you may not be able to afford. You may find yourself with benefits too low to be useful and no way to buy added coverage, which means you may wind up dropping the insurance just as you reach an age when you might need coverage.

• Simple automatic increase. Many policies offer benefits which increase by a fixed percentage—usually 5%—or by each year’s national cost-of-living increase. However, these policies always use the original benefit amount to calculate the percentage increase. These policies are better than the added coverage purchase option because your benefits go up automatically without requiring higher premiums.

• Compounded automatic increase. These policies automatically increase benefit amounts each year by a set percentage or by the cost-of-living increase. These policies compound theincreases each year rather than always using the original benefit amount as a base figure. Over ten to 20 years, this compounding might increase your benefits substantially. Of course, because automatic compounded inflation protection is so much better for the insured, the premiums for such coverage are usually considerably higher from the beginning.

• Time limited protection. Most policies put a time limit on the yearly inflation benefit increase. The limit is usually ten to 25 years from the date the policy begins, or when the insured reaches a certain age, usually 80 or 85. If you buy the policy when you are in your 50s or 60s, make sure you get the longest possible period of inflation protection.

Good inflation protection may raise the initial cost of a policy by 25% to 50%. But without good inflation protection, the lower premiums may be a total waste of money.

Seek long-term home care insurance

If you seek long-term home care insurance, try to get the widest variety of coverage possible.

There are a number of conditions and restrictions of which you should be aware:

• A few policies cover skilled nursing care and physical therapy in the home but not custodial care. Such coverage is far too limited, and you should reject it.

• Most home care policies cover skilled nursing care, other professional medical services, and nonmedical personal care, provided by a licensed home care agency. Personal care includes help with the activities of daily living (ADLs), such as eating, bathing, dressing, using the toilet, and moving around. It may also cover what are sometimes called “instrumental” ADLs, such as monitoring medications, going outside, light shopping, helping with meals and clean-up, laundry, and household telephone calls and paperwork.

• A few policies also provide limited coverage of some homemaker services—such as regular housecleaning, grocery shopping, and meal preparation—if an agency home health aide also does other personal assistance duties.

• Good policies cover care provided not only in the home, but also in licensed community care facilities such as adult day care centers.

• Good home care policies also provide for respite care and hospice care