Selecting an Inflation Rider for Long Term Care Insurance

By Compuquotes Team on March 27th, 2008

Long Term Care

Everyone worries about inflation - the cost of living steadily rising. However, what you may not have considered is that you may need to purchase an inflation rider for your long term care insurance as well. Decades from now, even years from now, a long term care policies aren't going to be of much help because the benefits are worth today's rates. Without protecting yourself against inflation, chances are your long term care insurance won't help you much at all.

You can easily protect yourself from inflation with an inflation rider. While an inflation rider will add to your cost of long term care insurance, it will save you the trouble of being much underinsured later on, when you need to use the long term care insurance. An inflation rider increases your daily benefit by a fixed percentage each year for a period of time that is set, as well, the lifetime maximum will also increase proportionately.

There are two basic types of long term care insurance inflation riders - simple or compound. A simple inflation rider is a fixed percentage adjustment to your daily benefit, while a compound inflation rider increases your coverage more quickly.

Most often, inflation riders on long term care insurance policies increase five per cent each year. So if you're daily benefit is $100, on the first anniversary of your policy, it will increase to $105. With a simple inflation rider, your daily benefit will increase by five dollars each year for the life of the policy. A compound inflation rider will earn you more coverage each year. Instead of the five per cent being based on the original $100, it will be based on the new level, so at the second year, you will gain five per cent on $105, instead of $100. A compound insurance rider works similarly to standard compound interest on a loan - with the rider, your interest keeps growing and growing, being based on new funds each year, which are five percent higher than the year before.

This type of long term care insurance inflation rider is not for everyone - but it is important to include it in your policy if you're younger, around the age of 50. For older folks, nearer to the age of 70, it may not be worth the time, or the funds, to have an inflation rider on the insurance policy.

The cost of an inflation rider being added to your long term care policy is quite expensive, because you are paying now for better coverage years from now. It's important to understand how long term care insurance works - the premiums are based on your age when you purchase the policy - the younger you are, the cheaper the premium. However, if you are younger, it's best to purchase the inflation rider which will allow you to pay a similar, yet higher, premium for a bigger benefit each year. Basically, if you start your policy when you're 45, your payments will be similar to that as when you are 65 with the rider included and you will be amassing better benefits for yourself over those years.

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