The inflation option on a long term care insurance policy is one of the most important parts in deciding how to structure your coverage.  The option you choose will have a big effect on how much your policy’s maximum benefit amounts will grow to in the future.  Even the “small” difference between choosing a 3% or 5% inflation benefit can amount to a difference of hundreds of thousands of dollars.  For most policies, the inflation options will look something like this:

-3% or 5% compound interest
-5% compound up to 2x the original benefit amount
-5% compound for a maximum of 20 years
-3% or 5% simple interest
-Future purchase option

A 5% compound option with on maximum benefit is the most comprehensive coverage you can buy. 
The average annual rate of increase in long term healthcare costs is about 5%, so this benefit would approximately keep pace with future cost of care.

Let’s look at an example of a 3% compound, 5% compound, and 5% simple interest option over the course of 30 years.  We will assume a $6000 monthly starting benefit:

5% compound
Year 1 – $6,000 per month
Year 10 – $9,773 per month
Year 20 – $15,919 per month
Year 30 – $25,931 per month

3% compound
Year 1 – $6,000 per month
Year 10 – $8,063 per month
Year 20 – $10,836 per month
Year 30 – $14,563 per month

5% simple
Year 1 – $6,000 per month
Year 10 – $9,000 per month
Year 20 – $12,000 per month
Year 30 – $15,000 per month

As you can see, the 5% compound option has significantly higher benefits in the later years of the policy.

**NOTE – When comparing policies, make sure you understand whether the inflation benefit requires a corresponding increase in premium every year.  Most policies do not, but there are some that do and you always want to compare “apples to apples” when reviewing your options.

To get a quote and compare long term care insurance policies from the top LTC companies in the industry, please give us a call at 1-888-972-0024 or CLICK HERE to send us an e-mail 24 hours a day.  We can help design a long term care policy to suit your personal needs and budget.  Due to the complex nature of structuring long term care plans, there is currently no way for us to offer instant online quoting.