Save money on long term care insurance by choosing an inflation protection option that’s right for you.
Perhaps the most important component of a good long term care insurance plan is inflation protection. After all, buying coverage in today’s dollars will mean very little in twenty or thirty years or longer, so it’s critical to include inflation protection so your benefits continue to grow over time just like the cost for care will. At the same time, inflation protection is the most expensive feature of a long term care insurance plan, so it’s equally important that you choose your inflation protection option carefully. Prudent inflation protection selection can save you up to 15% on your long term care insurance premiums.
For many years, there were only a few inflation protection options to choose from. Applicants would often choose either a 5% compound interest feature (your benefit amount doubles every 14 years at this rate) or a 5% simple interest benefit (your benefit amount doubles every 20 years at this rate). The conventional wisdom held that individuals 65 or older could afford to insure with a simple interest strategy while it was important for individuals under the age of 65 to insure with a compound interest strategy.
Although 5% compound interest inflation protection is still recommended for applicants under the age of 65, it can sometimes be cost prohibitive. As a result, many long term care insurance companies now offer additional inflation protection options to make this valuable insurance more affordable.
Long Term Care Insurance Compound Inflation Protection Options
5% Compound Inflation for 20 Years
Some long term care insurance companies now offer an option to buy 5% compound inflation protection limited to only twenty years. Since most long term care claims are submitted for individuals eighty years or older, this limited inflation protection option allows applicants age 65 or older to enjoy the advantages of compounded interest growth during the first twenty years of their policy without having to pay for an expensive lifetime benefit.
More Compound Inflation Protection Options
For younger applicants or those who still prefer benefit growth for the entire duration of their policy, some long term care insurance companies now offer additional compound interest rates as a means of making premiums more affordable. Additional compound inflation rates to choose from include:
- 2.5% Compound Inflation Rate
- 3% Compound Inflation Rate
- 3.5% Compound Inflation Rate
- 4% Compound Inflation Rate
- 4.5% Compound Inflation Rate
- 5% Compound Inflation Rate
Although 5% compound inflation is still recommended for applicants under the age of 65, significant savings can be found by selecting a lower interest rate. Since the kind of custodial care that is most typically provided in a long term care setting has been growing an average of almost 4% per year, most long term care advisers don’t recommend selecting a compound interest rate any lower than 3.5%.
