Long Term Care Policy - Choosing an Inflation Rider

An inflation rider may be the most important addition to your long term care policy. While inflation riders increase premiums, they provide a vital measure of security in your long term care planning. Nursing homes and other long term care costs rise an average of five percent per year. A benefit level that was adequate when you took out the long term care policy won’t pay for the same level of care when you need it a few years down the road. Inflation protection riders preserve the buying power of your policy by adjusting the benefit amount to compensate for inflation. Inflation riders can be simple or compound, depending on how the adjustment is calculated.

Simple Inflation Riders

Simple inflation riders are less expensive. A simple rider adjusts the benefit amount every year based on the initial benefit. If you buy a long term care policy with a $100 daily benefit level and a 5% simple inflation rider, each year, the daily benefit level will increase by $5. In 10 years, your daily benefit level will be $150, paying out $54,750 annually instead of the $36,500 without any inflation rider.

Compound Inflation Riders

Compound inflation riders are more expensive because the benefit increases are based on the previous year’s amount rather than the original amount, so the increases compound. After 10 years, a policy with a $100 daily benefit and a 5% compound inflation rider will pay $162.89, or $59,455 annually.

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