Long Term Care Insurance inflation protection is a must have

This week I was filling out an application with a husband/wife when we were reviewing the inflation protection option.  They told me about their parent’s (in their 80’s) who purchased a policy years ago with ony $80/day coverage.  I said that should be fine as long as they have inflation protection attached to the policy…which unfortunately is not. 

Inflation protection is one of those “must haves” on almost all properly designed Long Term Care Insurance policies.  A good rule of thumb is to select 5% compound inflation if you are purchasing a policy under the age of 70 years old.  If you are over 70 years old when purchasing your policy then 5% simple interest is fine.

Inflation protection will increase your daily benefit thus increasing the total “pool” available in your policy.  For example, if you purchase $200/day now with 5% compound inflation, then next year you’ll actually have $210/day coverage.  The following year that $210/day will increase by another 5% and so forth.  With the increasing cost of health care and long term care, properly designing a policy today can save you from disappointment 20 years down the road.

What’s the correct Long Term Care Policy daily benefit amount?

I’m often asked when meeting with clients “what daily benefit dollar amount should we select?”.  The quick response is “as much as you can afford”.  The policy price is determined by your health rating, length of benefits and of course, the amount of that daily benefit.  When Long Term Care policies first came out years ago most agents were recommending $100/day.  With the cost of care increasing with inflation, the amount you should select now really depends on your financial situation, age, geographic location.  If you are in a metro area and plan of retiring in an high cost of living area then a higher daily benefit will help.  A good way to do a little homework is to call a local nursing home.  If the going rate in your area is $6,000 per month…and you divide that by 30 days then we know $200/day would cover most of your costs today, assuming you add inflation protection to your coverage (which is a must for anybody purchasing a policy that is less than about 72 years old).  I typically recommend a range of $150/day to $220/day depending on your assets, age, and where you plan on retiring to.  Also, if this policy will be your only way to cover your long term care costs…then a higher daily benefit is needed.  If you have substantial assets and this policy is going to be used to mitigate most of your costs….then you could select a slightly lower daily benefit.  $200/day is typically what most of my clients purchase today.

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