Friday, March 13, 2009

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.

5 comments:

  1. how beautifully you have to categorize the types of long term care insurance, all type of persons now have to get benefit from it.

    ReplyDelete
  2. An insurance disability lawyer can come to the rescue in such times to guide and counsel the individual through the process. A lawyer will make sure the proper documentation and specific information needed to fill the application is filed.

    ReplyDelete
  3. really good categorisation...
    keep it up...

    ReplyDelete
  4. Know the credentials of the insurance company first before you decide on buying from them. It's best to know if they really deliver.

    ReplyDelete
  5. The option is sounding great and having more benefits in long term. If we take a policy for a short period of time then we have to pay the current amount when extending the policy further but in case of long term there will be no change in price as the duration of policy is quite higher.

    ReplyDelete

Search This Blog

Links