It is a known fact that the cost of things do get more expensive over time, including long-term care services. So it is important that you take into consideration inflation protection if you are thinking about purchasing a long-term care insurance policy. The decisions that you make when you purchase a long-term care insurance will effect how much the policy will cover when you actually need the insurance and nobody can predict what the cost of care will be in 30 years. This information will hopefully help you in making an informed decision on whether to purchase inflation protection and what level of protection.
An inflation protection option will increase the daily benefit as well as the pool of money of a long-term care insurance policy. Inflation protection does come at an extra cost. Here are some of the more common options for inflation protection:
-5% or 3% Compound inflation increases - This will increase the daily benefit as well as the pool of money by either the 3% o 5% from the previous years daily amount. This will increase the benefits of a LTC Insurance policy over time, 15 years to double for a 5% Compound level.
-5% Simple - This will increase the daily benefit as well as the pool of money by either 3% or 5% from the original daily amount. This will increase the benefits of a LTC Insurance policy as well over time, 20 years it will take to double.
-Consumer Price Index Increase - The daily benefit and pool of money will be recalculated each year based on the CPI, which has been an average of 2.5% from 2003-2009. This increase will also increase your premiums when opted for the increase.
The cost of care has been increase on an average compound rate of approximately 4.5%.
Generally the 5% compound option is typically a better option for those who will keep their policy for a longer period of time, say under the age of 60 if it is affordable. If it is not affordable then the 3% Compound might be a better choice versus the 5% Simple. After 32 years of a policy being in force, 3% compound will outpace 5% simple.
CPI benefit increases is another option. However, medical costs do not follow the averages of other goods and services. In addition, CPI does fluctuate over time.
Purchasing long-term care insurance is an important decision in planning your future, by making a wise decision now will reduce the risk of your investments being spent on long-term care services.
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