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When it comes to Long Term Care Insurance (LTC), an important feature to consider is an inflation rider. Simply put, your LTC insurance benefit needs to keep pace with the increasing cost of long term care services. Here are some options to consider:
Choice #1: No Inflation Protection
You get what you purchase. For those in their late 70’s or early 80’s, it make sense not to purchase inflation protection and just purchase as much daily benefit as you can possibly afford.
Choice #2: Guarantee Purchase Option
You purchase a policy with a guarantee purchase option (GPO). For seniors in their 70’s, this may be a good choice. This option allows you to increase the daily benefit with no additional underwriting. The downside to this option is that the cost of each increase chosen is based on the new age of the insured. Also, many of the policies will stop the offer you if have rejected it two or more times or have been on claim.
Choice #3: Simple Inflation
You can purchase a policy with a simple inflation rider. For seniors in their sixties, they may want to consider an inflation rider which will increase their daily benefit by 5% each year automatically. The cost of the annual premium will be greater. For example, the premium could be double.
Choice #4: Compound Inflation
The most powerful option is the compound inflation options at 3%, 4% or even linked to the Consumer Price Index. For those in their early 60’s or younger, this option will allow the policy benefits to have the best chance of keeping pace with increasing long term care costs. Here again, the premiums will be greater but the daily benefit will double over 14 and 1/2 years based on a 5% inflation rate.
There are a number of factors that will impact the purchaser’s decision as an inflation rider. Age is a major factor but one’s health, finances and family history must be considered as well.
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