Inflation Analysis 
As stated by many financial experts, Long Term Care costs are expected to escalate approximately three times in the next 20 years.  In order to keep current, you will need a 5.7% rate of inflation protection.   While most companies offer either 5% compound or 5% simple inflation protection, you will find that the compound option will greatly increase your benefit amount over time.  For those under age 70, this is usually the recommended option.

What is the difference between compound and simple inflation protection?

While premiums are level, simple inflation benefits increase by a percent of the original benefit each year while compound benefits increase the original benefit plus previous increments.  Therefore, after the first couple of years, the benefit amount is significantly increased.  For example, if you have a $200 daily benefit and your policy has been enforce for 15 years, with 5% simple inflation protection, your daily benefit would increase to $340 and your annual payout would be $124,100.  With compound inflation, your daily benefit would be $396 and your annual payout would be $144,535.

The actual cost difference in the premium between the two options is minimal as compared to the increase in benefit amount.  It is so important to ensure what you purchase today is relevant for tomorrow.

When comparing policies, be sure to note if increases are affected by benefit payments.  For some policies, the increases are based on the original benefit amount while in other policies, the increases are affected by benefit payments.  For the latter, this means if a policy holder goes on claim, future increases will be reduced by benefits paid.  This is called claims offset.  Policies with no claim offset actually provide a greater amount benefits.

The following chart illustrates the difference between simple and compound inflation protection over a 30 year period using daily benefit amounts of $200, $250 and $300. 

bullet 30 year comparison of inflation

For more info on inflation protection options, or if you have other questions, please call us at 631-393-5039 or email us at info@ltcamerica.com.

 

 
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